How Amazon thinks outside the box in retail

  • Opinion
  • March 3, 2016
  • Theo De Monchy
How Amazon thinks outside the box in retail

A company’s ability to compete is no longer determined by their scale or size, but by their capacity for agility, innovation, flexibility and adaptability.  Too many companies still try to innovate from inside a closed ‘industry box’ thinking only of existing consumers, competitors, suppliers and distributors.  Effective innovation more often comes from outside of the industries in which companies operate, and learning to look outside their own walls in order to find these unique growth opportunities is hugely important.  At the same time, organisations also need to acknowledge that the biggest threats are no longer coming from, or confined to, their own industry, often times appearing completely unexpectedly to completely disrupt the industry.

In today’s market, competitors can come from any sector, and often they’re completely unexpected.  One of the best examples of this is Amazon and the decimation it caused to the book industry through e-commerce.  A quick comparison between the stock prices of Amazon and Barnes & Noble on a 365 moving day average shows the rapid growth of the internet giant in comparison to the brick-and-mortar retailer Barnes & Noble who, alongside Borders, ruled the industry prior to Amazons rise.  Between 2005 and 2006 Amazon’s growth can be seen to have picked up speed in a near constant upward trajectory while Barnes & Noble begins to flat-line and decline.

Amazon’s sudden rise over larger, more established competitors like Barnes & Noble and Borders is testament to the fact that competitors can come from anywhere, often unexpectedly.  At the time, the book industry couldn’t have foreseen just how disruptive the Internet would be to their business, however it was ultimately their inability to adapt and change how they operated that ultimately held them back while Amazon thrived.

While Barnes & Noble continues to soldier on, their co-founder of the book mega-store, Borders, failed miserably to adapt to the growing threat of digital.  In the early days of the book mega-store, before Amazon, Borders had a massive advantage thanks to their advanced inventory system that could predict what consumers in different parts of the country were going to buy.  But as time went on they lost their technical advantage, and by the mid-1990s they had began to invest heavily in CDs and DVDs, as well as increasing their brick-and-mortar locations, while competitor Barnes & Noble recognised the digital threat and began to move online, even creating their own e-reader, the Nook.  As Borders continued to invest in physical locations, they made their next big mistake by outsourcing their online sales operation to Amazon, a move that one observer described as “handing the keys over to a direct competitor”.  By the time they realised their mistake it was too late, with 2006 being the last year Borders recorded a profit.  By 2011 it was all over and Borders was liquidated, with its 400 remaining stores closed and nearly 11,000 employees losing their jobs.

Borders failed to recognise that the way consumers were shopping for books was changing, with the majority of them looking at a product in store before buying it online from the cheapest distributor.  Borders failure to adapt, as well as consumer ambiguity about who they bought from, ultimately lead to their downfall.

At the other end of Borders fall is Amazon’s rise.  Their ability to perceive the enormous potential for the Internet, as well as entering the industry with fresh, un-jaded, eyes quickly saw them rise to be the market leader in the U.S. book industry.  However, as stated earlier, this does not guarantee that they keep this position and that they can now rest on their laurels.  A research study commissioned by Publishing Technology in 2014, found that the way people shop, and consume, books is again changing. 

The study found many interesting points around how millennials are interacting with the book industry.  For example, 52% of millennials surveyed normally acquire books from large chain stores as opposed to online vendors like Amazon, and 28% of them discover and purchase books by browsing bookstore displays.  In response to this change, Amazon is effectively entering the traditional book industry for the first time with their own brick-and-mortar stores.  According to General Growth Properties CEO, Sandeep Mathrani, Amazon’s “goal is to open 300 to 400” brick and mortar locations.  In comparison Barnes & Noble currently has 640 stores nationwide through out the U.S.

This is a significant move for Amazon.  The Internet giant took advantage of an opportunity that saw them completely change the face of the book industry, however now that leadership is being challenged by changing consumer preferences.  By using learning’s from both their own sales experience and the successes and failures of Barnes & Noble and Borders, Amazon has the ability to create a completely unique consumer experience that circumvents current offerings to both delight and deliver in equal measure.  Operating outside the box has given Amazon a unique perspective from which to think their way disruptively back into the box.  By using their e-commerce data in the retail environment, they’re creating an entirely new bookstore experience.

Amazon’s ability to adapt and embrace change has once again seen them make a move that is completely unexpected, catching the industry by surprise and again sending ripples throughout the industry.

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