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Retailers Adjust to the Amazon Effect

Amazon Effect; E-Commerce; Retail; Consumer

When founder Jeff Bezos introduced Amazon.com to the world more than 20 years ago, it was supposed to signal the demise of the bookstore.

The threat from Amazon did prove deadly to national chains such as Borders, B. Dalton and Waldenbooks, which gradually vanished from local malls. Meanwhile, even the 600 stores of survivor Barnes & Noble are said to be in peril.

But the “Amazon effect” didn’t end at books. As e-commerce systems and mobile technologies have matured, Bezos’ behemoth is endangering virtually the entire retail industry. Consumers are doing an increasing share of their shopping on the internet, opting to purchase everything from clothes to cars online in lieu of visiting brick-and-mortar stores. According to data from the U.S. Department of Commerce, e-commerce sales in 2017 reached $453.5 billion, up 16 percent from the year before. Overall, e-commerce accounted for roughly 9 percent of all retail sales for 2017 in the U.S. There are a lot of ways to interpret that number, but one of them is this: the Amazon effect is just starting.

Certain retailers may have a greater natural resilience to the Amazon effect than others. Home Depot, for instance, with strong business among contractors and products that many like to buy in person, seems to be holding Amazon off. But adapting to the new realities of the online marketplace isn’t optional—and as retailers like Sears and Toys R Us learned, not every company is cut out for it. Some retail companies are adapting to the Amazon effect by embracing omni-channel strategies focused on integrating online and in-store shopping. The objective is to leverage the different channels at the retailer’s disposal to best suit the needs of their customers.

For example, some consumers like to engage in “showrooming,” in which they visit a brick-and-mortar store to inspect a product before purchasing it online. In doing so, they get the opportunity to check out the merchandise before they buy it, then hunt the web for the best deals.

Other retailers have had success with “BOPS” options – buy online and pick up in store. This process can guarantee products the customers want will be available and ready for them to pick up when they show up at a store, rather than heading there and hoping the items will be in stock.

Additionally, “ROBO” transactions refer to purchases in which customers research an item online and then buy it offline. A customer might browse an apparel store’s website, for instance, then visit the store to try on and purchase clothing.

A study published by Harvard Business Review in 2017 found that 73 percent of 46,000 customers of a large U.S. retailer used multiple channels to make purchases, an indication that the omnichannel approach is here to stay. In other words, for retailers trying to stay afloat, incorporating a robust digital presence into their businesses appears to be a must.

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