Amazon’s Place in History

A Primer for Prime Day

By The WD Strategy & Insights Team

Amazon’s growth, and let’s face it, domination, has not been an accident. Yet it has come at the cost of some…retail salespeople, store closures and even Walmart. This year marks the 3rd Amazon Prime Day, let’s take a look at how Amazon has grown and what it means for the future of the industry.

Amazon employed more than 306,000 people globally in 2015, adding 35,000 in 2016 for a total of 341,000 people by the end of year. Despite this investment in human capital, Amazon is also building a robot army. In 2016, Amazon saw its fastest increase in the robot army—a stunning 50 percent—jumping from 30,000 robots in 2015 to 45,000 in 2016.

How is Amazon affecting traditional retail jobs?

KEY QUESTION: What is the outlook for traditional retail jobs? There are 4.6 million people who work as retail salespeople today, with another 3.5 million working as cashiers. Combined, these two jobs comprise nearly six percent of the U.S. labor force, according to the Bureau of Labor Statistics.1 These are traditionally very low-wage jobs: retail salespeople earn about $26,000 a year, and cashiers earn only about $21,000 annually. Despite this, such jobs have remained relatively constant2 since 1988, when the BLS began publishing its annual Occupational Outlook Handbook. The outlook isn’t good for cashiers, though. These jobs are expected to increase by only two percent through 2024,3 although retail sales jobs might rise by as much as seven percent during the same period. 4

PREDICTION: Amazon has an unprecedented opportunity as it enters the bricks-and-mortar game to adapt and exploit a new retail ecosystem. It is not beholden to legacy structures or the same kind of built environment traditional retail stores are trapped in. Instead of devoting labor to finalizing transactions, Amazon can instead focus on hiring people to focus purely on customer service within its rapidly growing bricks-and-mortar network. Amazon—lacking the legacy infrastructure of a traditional retailer—is uniquely positioned to build a new retail model with customer service (not transactions) at the center of the experience. By automating labor intensive tasks, workers can instead focus on curation and driving demand, not merely managing the tedious tasks at checkout. With this shift, consumers might at last find a social shopping experience, a place for commerce and gathering, instead of one dominated by line waiting and the tedium of checkout.

By some estimates, there is as much as 7 billion square feet of retail space in America. There are now 70 Amazon fulfillment centers,5 some as large as one million square feet, in operation. There are no reliable figures on the square footage of each location, but if an Amazon fulfillment center averages about a million square feet, a rough estimate would be 70 million square feet.

Will Amazon’s fulfillment centers remake America’s retail landscape?

KEY QUESTION: What kind of spaces is Amazon building? What contributions is it making to the landscape of consumer culture in a post-industrial America? Fulfillment centers are not at all comparable to the spaces built by the once great retail brands during America’s era of rapid industrialization at the turn of the 20th century. In major metropolitan areas department stores like Kaufman’s and Bloomingdales opened as meccas of high art and culture. Today, major department store retailers—from Macy’s to Sears—are closing hundreds of mall-based locations. Such closures come as the productivity of department stores has declined sharply, especially since 2006. In fact, sales per square foot have declined 24% during this time frame. Department stores average only about $165 per square foot, according to Green Street Advisors.6

PREDICTION: Amazon’s rapid construction of fulfillment centers may soon remake America’s retail landscape. Amazon’s strategy on where to locate warehouses and fulfillment is changing. It once placed these massive structures far from population centers in a bid to avoid the collection of sales tax. Now these centers are being built near big cities. A typical metro region once had a mall on almost every side of town. Amazon is upending local retail trade markets, creating a divide between high-end malls and mid-tier malls, closing in droves. This shift greatly benefits regional and destination shopping centers, which draw shoppers from a wider trade area. Can Amazon build enough fulfillment centers before Walmart does? And will Amazon be the ecommerce player to be the first to offer same-day delivery to consumers? One can argue Walmart is already thousands of fulfillment centers ahead of Amazon. If Walmart starts seeing its stores as distribution and fulfillment centers (as it should) it can more quickly align its business model to changing consumer demands. For other retail brands, the time has come to rethink the final real estate mile. Stores can only compete by outpacing delivery times, or by aggressively competing directly with Amazon by offering seamless, same-day pickup inside their existing physical stores.

What was once considered the groundbreaking growth story—how a discount chain started in the rural south became the biggest retailer in the world—may soon be eclipsed. In 1962, Sam Walton opened his first Walmart store, but it would take 35 years before the discount retailer reached $100 billion in sales. In 2015, Amazon reached the same milestone of $100 billion in sales in only 22 years.

Will Amazon be the first company to reach $1 trillion in sales?

KEY QUESTION: Have we ever witnessed the kind of growth Amazon is logging in retail history and is it sustainable? In Amazon’s case, continued growth is closely tied to the loyalty of its consumers. The growth of Prime memberships, and most importantly, investor patience, considering its profits have never come close to matching those of Walmart. Consider sales and profits at both companies over the same 20-year period (1995-2015). Walmart posted profits of nearly $15 billion. Meanwhile, Amazon only posted profits of about $2.5 billion.7 And by sheer scale and size, Walmart is still three and a half times bigger than Amazon when it comes to overall sales. In fiscal year 2016, Walmart posted sales of $482 billion, compared to $136 billion at Amazon.

PREDICTION: Even so, the idea that Amazon could be the first company to reach $1 trillion in sales has gained credence of late. But is there a saturation point—a threshold of unsustainability for Amazon’s business model? Some analysts have argued the key factor behind Amazon’s dominance is its Prime program. More than half of U.S. households are Prime members. This growth has had a tremendous impact on customer loyalty. Growth in Prime memberships once increased as much as 50 percent annually. However, Amazon has not released growth trends more recently, except to say it’s adding “tens of millions” of new members. Even so, the stickiness inherent in the brand’s relationship with consumers through Prime is the envy of any retailer. Prime gives the Amazon brand an unprecedented entry point into more and more areas of consumer culture.

Thanks for reading, hope you had a great Prime Day!

Share

Leave a Reply

Your email address will not be published.

3 × one =

This site uses Akismet to reduce spam. Learn how your comment data is processed.