How Amazon.com Remains the Ruler of Retail
It happened again. Amazon.com (AMZN) had a record holiday shopping season as consumers flocked to online deals.
Mastercard (MA) reported last Thursday that online sales surged 18.8%. Those now comprise 14.6% of total retail sales in the United States. Brick-and-mortar stores recorded only a 1.2% gain.
This is more bad news for physical stores. But managers have only themselves to blame.
Amazon.com is an aggressive competitor. In addition to battling on price with brick-and-mortar stores, the Seattle online retailer has relentlessly built out its portfolio around experiences.
For a subscription fee of about $119 per year, Prime customers get fast delivery and perks like free music, video-streaming services, digital photo storage and access to Twitch, its online gaming network.
It’s a heck of an incentive to stay home and avoid the crowds at the mall.
But that’s not why Amazon is winning customers. Its real advantage has always been service.
Amazon.com excels at customer service. Customer complaints get resolved immediately and completely, with an actual live human being.
The Harris Poll on corporate reputation in 2018 ranked Amazon.com No. 1 for the third consecutive year. Its American consumer satisfaction index has ranked the online retailer in the top 10 since 2007.
CEO Jeff Bezos used to tell reporters that aligning the company’s interests with its customers’ ensured success.
From the onset, he instructed his customer service managers to never settle for any outcome that was less than 100% customer satisfaction. As the company grew from a niche online bookseller to a global behemoth, settling would have been easy. It never happened.
Given its technology roots, it would have also been easy to push forward with customer-facing automation. That didn’t happen, either.
Many retailers in the physical world are racing to add self-service checkout lines in their stores. They are making customers engage with automated software bots for service calls.
The irony is, brick-and-mortar retail executives have learned nothing from Amazon’s success. They believe the way to compete is less contact with customers. They could not be more wrong.
PwC, the giant professional services firm, found in 2018 that 64% of American customers feel brands are moving too quickly toward automation, and that they have lost touch with the human element, according to reporting in Inc.
Amazon managers are automating warehouses and supply chains — the stuff customers don’t see.
They are hiring more people to have conversations with customers.
The company is winning retail because managers figured out long ago that selling is about relationships, not technology.
Investors shouldn’t be surprised Amazon.com is doing well. The business was built from the ground up to win retail.
2019 was mostly about consolidation. But in 2020, we could see the shares take out their prior record high and blaze their way toward … and well beyond … a trillion-dollar valuation.
The stock trades at 68x forward earnings and 3.5x sales. Neither metric is expensive, given the potential for e-commerce to become a much larger part of total retail sales.
Investors should look to any pullbacks as buying opportunity.
Jon D. Markman