by Martijn van Heeswijk and Serte Donderwinkel
Dutch e-commerce players, be aware: Amazon is coming to the Netherlands soon, potentially disrupting the market. In this article, we share our thoughts on the impact this might have on the Dutch e-commerce landscape. Furthermore, we suggest how national e-commerce players can defend their positions against Amazon.
Based on recent events, it seems likely that Amazon is shifting its focus to the Dutch market:
- Amazon is looking for office space in Amsterdam;
- Amazon.de is translated to Dutch and offers the possibility to order from a Dutch address with free shipping;
- On Cyber Monday, Amazon.de bought all advertising space at Nu.nl (largest Dutch news site with 2.7 million daily unique visitors) with several discount deals targeted at the Dutch audience.
There are two reasons Dutch e-commerce should be worried about this prospect: a large and hugely successful player is joining the ranks and Amazon continues to evolve at considerable pace, leaving their competitors behind. CEO Jeff Bezos is determined to win the e-commerce battle, stating “your margin is my opportunity.”
Amazon’s strike of success
Amazon’s reported revenue was $136 billion in 2016, a 27% jump from previous year’s $107 billion. Of every dollar spent online in the US, 43 cents are spent on Amazon. Once upon a time, Amazon was only used to buy books. Nowadays, Amazon allows any business to sell almost anything on its Marketplace. Other activities include Amazon Web Services (largest cloud-computing service globally) and Amazon Pay (payment platform, comparable to PayPal). Amazon is currently the fourth most popular website in the US and Germany (in both countries after Google, YouTube and Facebook). In comparison, Dutch e-commerce market leader Bol.com is only the fourteenth most popular in NL. These numbers illustrate Amazon’s dominance in e-commerce, which is of a scale we have not yet seen in the Netherlands.
However, to understand the impact that Amazon will have on Dutch retail, just studying its size is not enough. Amazon is more than a bulldozer, using its volume to put pressure on suppliers and press competitors out of the market. The company has an ever-expanding set of elegant tools to gain ownership of customers.
First, Amazon is successful in getting its voice-controlled personal assistant, the Echo, into everyone’s living room. It already sold 20 million devices in the US, and this number is growing steadily. With this device, people can place orders on Amazon by just asking Echo to do so. Amazon can make recommendations based on the behavior of their customers inside their houses. This makes upsell and cross-sell child’s play.
Another method of Amazon to integrate e-commerce in everyday life is the Dash button. This button can be placed near commodity items in your house, making it possible to order a new pack of your favorite brand of toilet paper with one finger press. The company is already cooperating with Siemens, Bauknecht and Bosch to integrate the Dash button technology into their household appliances. It won’t take long till your dish washer can order its own refill – and it will do so on Amazon.
The introduction of the Echo and Dash button indicate that Amazon is striving for customer ownership. Interestingly, customers don’t really mind this intrusion. In fact, they are even willing to pay for their loyalty: Amazon is hugely successful at selling ‘Prime Memberships’. Half of American households pay $99 per year for free shipping on Amazon and access to an Amazon-themed holiday, Prime Day. This consumption-fest is a big cash cow for Amazon: on Prime Day 2017, revenues were estimated at $1 billion. The most popular item was the Amazon Echo, showing how the loyalty programs of Amazon enhance each other. Similar paid loyalty programs have been introduced by Dutch players as De Bijenkorf and Bol.com, but Amazon Prime far exceeds these programs when it comes to consumer penetration.
“The Amazon effect” on retail and e-commerce
Every dollar spent on Amazon, either via the Amazon Echo, the Dash button, on Prime Day or via the regular sales channels, is not spent elsewhere. This has a tremendous effect on American retailers, but also on employment figures and the public space. Amazon’s impact on traditional retailers was long foreseen, and in 2012 the ‘Death by Amazon’ index was introduced. This index tracks the stocks of 54 major retailers that are predicted to suffer most from Amazon’s growth. Since its introduction five years ago, the total market value of these companies grew only 16.5%, while the value of the S&P 1500, the 1500 largest companies in the US, grew 85.9%. In the same period, Amazon’s stock increased by 299%. Furthermore, due to efficiency in e-commerce, and Amazon in particular, there are 75% less employees needed per dollar revenue compared to physical retail. As a result, 9,000 jobs disappear every month in US retail. Moreover, estimates of how much physical shopping space will disappear in 2017 range from 8 to 14 million square meters. A similar effect is expected when Amazon comes to the Netherlands – accelerating the downfall of physical retail.
The effect of Amazon on traditional retailers has been undoubtedly negative, but the relation between Amazon and e-commerce players is a bit more complex. On one side, it can be argued that a giant with over 40% market share is an enormous threat, being the first stop for most online consumers. However, many e-commerce players have reacted by offering their products on Amazon Marketplace, opening up to a large base of new customers. That said, there are cases of successful sellers on Amazon that saw an exact replica of their product, produced by Amazon, appear with a featured listing on the platform. This made the individual sellers’ sale shrink. Also, retailers offering their product on Amazon Marketplace, lose all their customer data and brand loyalty. In short, Amazon is giving a strong push to e-commerce, making the pie larger for everyone, but is also claiming a growing part of the pie.
How an e-commerce business stays strong next to Amazon
As Amazon is heading for the Netherlands, it goes without saying that e-commerce players need a clear strategy on how to act. Namely, in a market where Amazon is active, there is no space for all current e-commerce players to survive in the long run. Some will last and some will fade. There are two important factors that decide if a business can flourish next to Amazon.
Firstly, businesses need to offer a differentiated value proposition for which a one-size-fits-all selling approach doesn’t suffice. There are three product types to which this applies.
- Products that require traditional seller’s expertise during the buying process. Examples are high-quality cameras and lenses, with Cameranu.nl and Kamera-express.nl as examples that offer an excellent service combined with reasonable price levels. Both have an expert helpdesk and integrate their online shop with physical stores.
- Products that require a sensory experience before buying. Some products are easier bought online by consumers if they know they can try on beforehand. An omnichannel approach can work, see for example of Fietsenwinkel.nl and Coolblue.nl, who combine their online store with offline experience centers.
- Products that are discovered rather than explicitly searched for. For example: customers want to browse through a curated collection of dresses before buying one (Net-a-porter.com). Another example is Westwing, the online furniture brand, that offers a tailored selection of home & living articles, which differs per market.
Thus, if competing with Amazon, you cannot win the easy way. You won’t be the cheapest and you won’t have the largest assortment, so it is important to find your added value over Amazon. Determine what you can offer that cannot be offered by the one-size-fits-all giant. This will be your reason of existence next to Amazon.
Secondly, Amazon will set the new standard of user experience in online retail. Thus, e-commerce businesses should be able to keep up with Amazon’s smooth flow. Amazon will spoil customers with frictionless shopping, one-click-checkout, superfast delivery, and smart recommendation systems. If your user experience is lagging, customers will notice the difference between you and Amazon and will be tempted by Amazon’s nearly perfect service and efficiency. Getting your technology and logistics up-to-date cannot wait and will be worth the investment.
Concluding, the retail and e-commerce landscape in the Netherlands will change dramatically when Amazon arrives, as we have seen in the United States and Germany. Luckily, Dutch e-commerce players do not have to be taken by surprise and are given time to anticipate the disruption that Amazon will cause. It is key that those companies have a differentiated value proposition and seamless shopping experience, so they are well-positioned when Amazon comes to town.
This article was based on market analyses by BLOOM. Data gathered from Bloomberg, Emerce, Financial Times, Financieel Dagblad, SimilarWeb and TechCrunch