Amazon’s recent acquisition of Whole Foods is one of the most significant retail stories of the year, leaving retailers and analysts asking the same pressing question: “What’s next for Amazon?”
Retail TouchPoints asked industry experts to weigh in on where the e-Commerce giant could be expanding its retail reach, and what to expect beyond 2017. Each expert predicted that Amazon is likely to take a break from major retail acquisitions in the near term, but will continue to express interest in segments such as pharmacy, beauty and specialty retail.
Here are some key takeaways from 5 leading retail analysts and consultants:
Advertisement
Charlie O’Shea, VP and Lead Retail Analyst at Moody’s Investors Service: “We are betting the lion’s share of Amazon’s investments will turn into profits over time, and the content side is driving Prime memberships. Anybody can ship for free, but no other retailer has built an ecosystem of content like Amazon has to support Prime.”
Natalie Kotlyar, Leader of the Consumer Business practice at BDO: “I could see Amazon turning Alexa into a GPS service; an ‘Alexa On-the-go’ so to speak, where Alexa could possibly replace Siri.”
Nikki Baird, Managing Partner at Retail Systems Research (RSR): “I think Echo Show is the most important investment Amazon has made around Alexa. Voice is great for asking questions, but it’s not necessarily so good at giving answers, not when a picture can be worth a thousand words.”
Mike Kim, Director and Head of Center of Data Excellence (CODE) at AArete business consultancy: “Given Amazon’s known mastery of supply chain, it would be logical for a combined Amazon/Whole Foods to push further into food, by acquiring food distribution or delivery companies.”
Jim Fosina, CEO of Fosina Marketing Group: “Amazon now needs to think outside of its channel by leveraging the personal transaction data that they have about customers’ affinity to brands and sectors to be more proactive in connecting with their customers. This could be Amazon Advice or Amazon Alerts.”
The experts also shared 4 predictions, noting that Amazon will:
- Increase emphasis on original Prime content to retain and acquire new customers;
- Prioritize fashion, which already is being realized through its Prime Wardrobe service and its ongoing launches of private label brands;
- Expand the Alexa platform to power more professional services outside the home; and
- Enter India and China markets.
Read on for more detailed insights from each industry expert.
Charlie O’Shea, VP and Lead Retail Analyst at Moody’s Investors Service
It’s really hard to measure where Amazon is going to be. I was on CNBC several days ago and I characterized it as almost a laboratory experiment.
Amazon is spending a lot of money on Prime — the content spend — and we’ve been saying for a while that the content part of Prime is where a lot of the value lies, and that’s why the company’s spending a lot of money there. We are betting the lion’s share of Amazon’s investments will turn into profits over time, and the content side is driving Prime memberships. Anybody can ship for free, but no other retailer has built an ecosystem of content like Amazon has to support Prime. When you look back at the products that sold heavily on Prime Day, it’s mostly Amazon’s proprietary content delivery products.
It’s clear that Amazon wants to do more in food; that’s an easy one. And it’s clear the company felt it needed a brick-and-mortar partner to scale food more rapidly. Apparel is an area where there’s obvious room for growth. I don’t want to say consumer electronics is played out, but a lot of the low-hanging fruit is gone there.
I know there has been public comment on certain segments, but I’m not sure they are that advantageous to Amazon — pharmacy is tough, for example. Walgreen, CVS and Rite Aid are fairly well embedded. I’ve seen some reports saying, “Is Amazon getting in that business?” but a lot of the pharmacy benefit managers (PBMs) [have already tried] online prescriptions. I don’t know what the online penetration is there. Even though there are PBMs that would like you to order prescriptions online, there’s a huge segment of the population that doesn’t buy anything online and I don’t know that it would be worth it for Amazon to go into buying prescriptions.
Natalie Kotlyar, Leader of the Consumer Business practice at BDO
Amazon will look to make Alexa more conversational, to provide more meaningful recommendations that will translate into more guaranteed purchases. Right now, instead of a back-and-forth, it’s still single questions and answers.
I could see Amazon turning Alexa into a GPS service; an ’Alexa On-the-go’ so to speak, where Alexa could possibly replace Siri. Not only do you have Alexa in your home, but you would also have Alexa in your car and you wouldn’t have to wait until you get home to speak to it, get a recommendation and make that purchase.
Also, Alexa could be expanded for more dictation services. For example, if you are a doctor and you want to provide better services and attention to your patient, you could dictate your comments and observations to Alexa during the appointment. Students could even take Alexa to school with them, where it could take notes while the student focuses on the class.
Perhaps Amazon will partner with various airlines or hotel chains and have Alexa make those travel reservations, where Prime members could get additional travel points or perks.
One of the other things I think Amazon can tap into is the rapidly growing $80 billion beauty and cosmetics industry. If Amazon comes out with their own cosmetics or skin care line, or purchases another company, that would be a home run given the popularity of self-care.
Nikki Baird, Managing Partner at Retail Systems Research (RSR)
Amazon seems to have gone on the record saying they don’t see more acquisitions in the near future. Honestly, they’ve announced so many new things in the last month or two, including acquisitions, it wouldn’t surprise me if they need to take a breather to absorb all that they’ve set in motion.
Fashion is my bet [as far as the next sector Amazon will focus on]. They launched Wardrobe, and there are rumors they are investing in better editorial for fashion. They have been in the business long enough that I suspect they have enough data to start getting much smarter about how they sell apparel online. They’ve launched a whole bunch of private label brands, from men’s clothes to lingerie to shoes and handbags. I haven’t seen a lot of new capability really in how they sell online, like how the apparel section of their site is organized, but it’s something I’ll be watching as we turn the corner on the holiday.
I think Echo Show is the most important investment Amazon has made around Alexa, that and opening up the platform to be embedded in other devices like the Samsung refrigerators. Voice is great for asking questions, but it’s not necessarily so good at giving answers, not when a picture can be worth a thousand words. Echo Show combines the best of both — voice interaction, but also a screen to display information like images in response. Or just think about trying to cook with Alexa. A recipe on a screen that Alexa can also read when you need it is much handier than having Alexa repeat ingredients and steps over and over.
Mike Kim, Director and Head of Center of Data Excellence (CODE) at AArete
I see a variety of options for Amazon to make further acquisitions. However, in terms of big blockbuster deals, I don’t expect that to happen anytime soon, given that the Whole Foods acquisition still has to be completed, and moreover absorbed.
However, if this acquisition is successful, there is no reason to doubt that Amazon/Whole Foods could purchase another large grocery chain to expand its geographic and demographic footprint. Also, given Amazon’s known mastery of supply chain, it would also be logical for a combined Amazon/Whole Foods to push further into food, by acquiring food distribution or delivery companies.
Another big venture possibility would be a clothing brand that would give them exclusive distribution and access to a large new consumer set. And to improve their own infrastructure, there’s potential for acquisitions in smaller, specialized software firms and other technological companies.
Outside of food, I think clothing could be the next big venture for Amazon. To figure out their next move, they would want to analyze how brand labels are performing and how they intersect with their existing consumer base.
Jim Fosina, CEO of Fosina Marketing Group
There is no doubt that Amazon is focused on all it can do to expand its footprint globally…moves that are being made in China and India indicate that Amazon is focused on fishing where the big fish (in terms of the size of the consumer market) are. Having mastered the fulfillment channel, they continue to invest there so that they can open up these huge markets to the Amazon way of life.
Amazon doesn’t think in a sequential manner. Its DNA is to look at product categories and vertical market segments where they believe adding inventory and/or capabilities will give them a better chance at grabbing incremental share of the customer’s wallet and/or a new group of customers.
My guess is that any future retailer purchases would come in the form of strong specialty retailers, in market sectors where retail is still strong. It’s likely they could purchase smaller and more regional grocery retailers as well.
I would think that they would have a smaller appetite domestically for specialty eTailers — [maybe in] places where they see great opportunity leveraging their infrastructure and efficiencies to make these businesses more profitable.
Amazon now needs to think outside of its channel, by leveraging the personal transaction data that they have about customers’ affinity to brands and sectors to be more proactive in connecting with their customers. This could be Amazon Advice or Amazon Alerts. The idea is: ‘We know that you like this or that product or category, and we want to alert you that a new product and/or brand has entered the market space.’
