The Amazon Effect on retail is not a new concept in retail. Home furnishings were safe industry from the eCommerce giant for many years. But as customers demanded a more Amazon-like experience, retailers struggled. These demands have not only played a role in furniture stores. It also changed the conversation for manufacturers.
The Amazon Effect on Retail
Amazon accounts for 50% of all eCommerce sales. But here is an online commerce fact: 80-85% of purchases are still happening in brick and mortar stores. These are great times for brick and mortar retailers. Especially in our home furnishings retail industry. So why are retailers so afraid of the Amazon Effect on retail? Maybe the problem is starting in the manufacturers. The problem, it seems, for manufacturers is balancing these two sales channels along with building a brand outside of it all.
To understand the scale, consider that last year the company generated $122.9 billion from online retail sales, with about $100 billion additional from other businesses such as Amazon Web Services, for a total of $232.8 billion (up from $177.8 billion in 2017). The entire home furnishings retail market for 2018 is estimated at $130 billion. That’s a little more than Amazon’s total online sales.
Read our retail ebook about the Amazon Effect on retail for furniture.
How Amazon Impacts Manufacturers
There are about 500 million products being sold on AZ! About 70 percent of the word searches are done on Amazon’s search browser are for generic goods. But these are mostly consumer goods and generic-type items being searched for, not typically furniture.
Yeah, it’s that big.
Let’s back up a minute and quickly discuss the landscape for manufacturers in the home furnishings vertical. There are basically four types of manufacturers:
- Brand-focused with traditional distribution. This can be very challenging to sell furniture on Amazon
- Multi-channel. For example, Ashley Furniture. This is very challenging to sell on Amazon
- White-Label brands. They don’t care about the importance of the brand. So selling on Amazon is no issue.
- Direct-to-Consumer (D2C) brands. 100% control, so not an issue on Amazon.
We’ll focus on the first two types of manufacturers since these account for most of our retailers out there, regardless of their own retail channel strategy online or through Amazon.
Assume in our first case that it is not the intent of the manufacturer to sell directly in any capacity. The manufacturer’s strategy is to sell through to retail with both a push strategy of market introductions and a pull strategy of possible creating customer demand through some form of direct marketing. So while the focus is on maintaining the brand and building sales volume, Amazon presents some major challenges.
Challenges with Controlling Amazon as a Retail Channel
First is Amazon is difficult to control as a sales channel, with unauthorized resellers constantly popping up.
Second is brand degradation by retailers, not only lowering the retail price but also using the brand name as part of their product to appear in searches. Part of this challenge is the inability to control retailers using the brand name to trigger a sponsored listing.
The third is exposure to counterfeit products. This is a huge issue and different than the second (and more insidious) because it actually puts the brand on the product. There are third-party services that can help with this.
Fourth is maintaining inventory and delivery status.
The fifth is the allure of selling direct therefore bypassing your retailers and opening up a whole new set of challenges. Plenty of content there.
Amazon Furniture Brands
What about Amazon launching furniture brands? The first two launched simultaneously and the 3rd a year later covers most of the style categories in furniture. And has taken the best ratings. How do manufacturers compete with Amazon selling their own private label among the manufacturers’ products? There are over 400 “exclusive” brands owned by Amazon, some are private label and some are ”made by Amazon”. It started with Amazon Basics/Amazon Essentials and grew from there, but success has been limited.
- Stone & Beam: Farmhouse Chic
- Rivet: Combines the best of mid-century and modern industrial design
- Ravenna Home: Classic Style Made Simple
- Nod (Tuft & Needle)
While we can’t comment on product quality, Amazon does offer free returns for 30 days, a 1-2 year warranty and 100 night free trial on mattresses.
Truth Behind Furniture Sales on Amazon
But none of these furniture brands are in their top 10 private label sales.
In fact, Turns out most Amazon-branded goods are flops that don’t threaten other businesses at all, according to Marketplace Pulse. In a study, the New York e-commerce research firm examined 23,000 products and found that shoppers aren’t more inclined to buy Amazon brands even when the company elevates them in search results.
The study suggests popular political and media narratives about Amazon’s market power are overblown, despite the company capturing 52.4 percent of all online spending in the U.S. this year, according to EMarketer Inc. Does the Amazon effect on retail make it too easy for brands to become dependent on the ecommerce giant as their only channel to ecommerce?
Using the Amazon Effect to Help Retail
Even more interesting is this. How are manufacturers best suited to leverage their existing retail sales channel for ecommerce?
Definitely. Amazon does not make it easy for any retail channel, period. The big delimiter for Amazon is fulfillment. It has to be a deliberate and capital intensive initiative if you want to sell successfully on Amazon. (product placement, reviews, pricing, fulfillment, returns, damages etc).
So manufacturers are not going to be successful on Amazon just by happenstance. I think that scenario is much more likely with a channel like Wayfair, which is home furnishings retail focused and the entire user experience is built around that experience. In that channel, there certainly are manufacturers who have a little more focus on direct sales than most retailers realize. I would place Houzz in that same category as Wayfair.
How to Scale Ecommerce for Furniture Retail
The fact is that if you want to build for scale in e-commerce, regardless of whether it is a brand selling direct through Amazon or Wayfair, or a retailer attempting to be successful through those same channels or independently, the business has to be thought through from production to fulfillment. This means you can’t just randomly pick a product off the floor or from a catalog and say “I’m going to sell this online”.
This is the biggest mistake retailers make.
You’ve got to look at the entire picture, and I assure you, Amazon or Wayfair already has. So realistically, for a retailer, you are going to want to work with your manufacturer to deliberately pick products that have relatively low competition, that has adequate imagery and visual assets, that can ship direct with low damages and don’t require white-glove delivery. If you look to an industry adjacent to home furnishing, the lighting sector does a good job of supporting e-commerce with all of these elements.
Additionally, the ALA provides a standardized data format that can be multi-purposed across a variety of channels (not just Amazon, but Overstock, Houzz, etc). And the furniture industry is not even close to such a standard. But not without attempts and this is certainly a cause we would champion here at MicroD.
The Threat of the Amazon Effect on Retail
There is a perceived threat in the Amazon effect on retail acquiring customers, margin, distribution, sourcing, and other data on brands that are selling on its platform. Data is one of Amazon’s unfair advantages afforded to the company by them running the platform. However, given its 23,000 products under the “Our Brands” portfolio, many of which failed to resonate with customers.