It’s Beginning to Look a Lot Like (Amazon’s) Christmas

By Ayal Shmilovich

The holiday shopping season is once again upon us and in 2018, online shopping is becoming more prevalent than ever. According to Adobe Analytics, online sales posted a record $6.2 billion in sales this Black Friday alone, an increase of 24% over the previous year. Furthermore, we know Amazon is the king of e-commerce. Their Cyber Monday sales alone dwarfed all Black Friday sales across the retail sector. Amazon boasted their biggest shopping day ever on Monday with $8 billion in sales and shipped over 180 million items across the world in the five days from Thursday to Monday.

Most of us use and love Amazon, but I want to highlight all the ways Amazon loves and uses us to make more money and continues to grow their already dominant presence in our lives.

Amazon Inventory Products
This is the standard product that we all know. If you go online and buy a Samsung TV, they will generally ship it from their own corporate inventory warehouses out to you.

Marketplace Products
Think of this as the 21st century department store. Sellers need to put out their products in order for a third party to sell them, by which the “middleman” (Amazon or the store) gets a fee for displaying the product. This is actually more lucrative for Amazon than their “direct sales model”, as they simply charge a fee for service and is much less capital intensive.

Amazon Branded Products
Amazon sells the Echo products that everyone knows. The phrase starting with “Alexa…” has become part of many people’s home life now. Other products they make are the Amazon Fire TV, the Fire Stick, Echo Dot, etc., all with the Alexa integration.

What you may not know about Amazon is that they are continuously “white labeling” products, which means that they take ubiquitous products like electronic components, food stuffs, paper towels, etc., and sell their own branded products, much like you see at the grocery store with milk, eggs, or other consumer staples. Amazon has added 66 private label brands to sell direct to their consumers on their site since the beginning of 2017 alone. As a result, sellers have a catch 22 when they sell successfully on Amazon. If they get too good, Amazon can simply copy what they do and market it at a lower price or higher margin. Despite this practice, sellers have no choice but to sell on Amazon because of its sheer size of the marketplace.

Another hidden gem for them is their high growth advertising business. According to their last earnings report, they made $2.5 billion in revenue on ads in the last quarter, up from $2.8 billion for all of 2017! Because Amazon knows exactly what consumers buy and their shopping habits, they can market products and services directly to you. Social media platforms like Facebook and Twitter rely on your network and demographics for information, while Google needs you to directly search for things so they can fulfill demand. Amazon is marketing to you at the “checkout counter.” You are already looking to buy something, so they will just help feed that impulse by sending you more products to buy, much like super markets sell tabloids or candy while you wait to pay. What’s even better for Amazon (not necessarily for you) is that they can rank their own products in order that is most lucrative to them like their white labeled products.

With all of these tactics, Amazon has set itself up as the unstoppable force in our consumer lives. Twenty years ago, if you were selling sneakers, a company like Nike would design the shoe, send it to the manufacturer, ship it to a store in the mall, and use television and print media to advertise, ultimately getting their products into consumers’ hands. Today, Amazon makes our consumer-based lives more convenient; all you have to do is push a “one click buy” button and nearly anything can arrive at your door in two days. Like it or not, this is Amazon’s world and we are all living in it.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.

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