APRIL 2013

RETAILNETGROUP.COM | RNGDIGITAL@RETAILNETGROUP.COM

© RetailNet Group 2013

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Even As It Scales, Amazon’s

Growth Outpaces Competitors

US Store-Based Retail (SBR) is growing at 3.4% CAGR 13-16

Total US Ecommerce is growing at ~3.5X SBR

Amazon is growing at ~2X ecommerce in the US

Outpacing US Store-Based

Retail’s Growth Rate by 6X:

Source: RNG research & analysis

58%51% 48%

34%

26%22%

8%

23%30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2012 2016E

Sh

are

of

To

tal U

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ale

s

Brick&Mortar.com Pure-Play Amazon

Amazon is Consolidating Non-

Store Retail in the US

Including 3P GMV, Amazon is

Already an ~$86B Retailer

Source: RNG research & analysis

Including 3P Gross Merchandise Value (GMV), Amazon is currently:

• The 7th largest retailer globally

• 23% of global ecommerce sales

Amazon’s Influence Goes Way

Beyond What it Sells

Source: RNG research & analysis; *Forrester July 2012

Amazon’s “limitless” selection &

info-rich product detail pages

make it a destination for product

research

30%

13%

0%

5%

10%

15%

20%

25%

30%

35%

Amazon Google

Share of Product Research by Origin

Amazon has growing influence over offline

retail as shoppers research before the trip &

in-store—a key driver of “digitally-

influenced” retail

*

Amazon Defies Conventional

Financial and Retail Metrics

Source: RNG research & analysis

-$5.00

-$4.00

-$3.00

-$2.00

-$1.00

$0.00

$1.00

$2.00

$0

$50

$100

$150

$200

$250

$300

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Stock Price Earnings/Share

Amazon’s EPS defies conventional

logic, but investors (and vendors)

see long-term earnings potential:

• Amazon takes the long view and is

willing to be misunderstood

• Amazon constantly reinvests in growth

and new businesses, e.g. offering faster

subsidized shipping over increasing

margins

• Amazon is selectively willing to sell at a

loss/low margins to win lifetime

customers and “annuity” revenue

streams (i.e. Kindle Fire)

• As the low cost player, low margins help

Amazon gain share and discourage

potential competitors

Amazon’s Asset-Light Structure and

Platform Approach are Key Advantages

Source: RNG research & analysis

Amazon’s asset structure is very different from Brick & Mortar retailers

B&M:

• Assets are ~30% as a percent of sales

• They include primarily depreciating assets along with rent & labor, which continue to increase in cost over time

Amazon:

• Assets are ~9% of sales

• Amazon is asset-light and its assets include technologies that get less expensive over time i.e. data storage

• Amazon has optimized its asset base and created ancillary businesses out of excess capacity i.e. FBA & ASW

AmazonFresh is Coming… The ‘Trojan Horse’ for Same-Day Delivery?

Phase 1:

2007-2012

Seattle

Incubation

Phase 2: 2013

Rumored

Expansion

(California)

Phase 3:

2014+

“National”

Expansion

Building on its “forward

deploy” fulfillment center

network, Amazon could

match demand to truck

capacity to deliver

general merchandise

same-day in cities that

offer AmazonFresh

Source: RNG research & analysis

Amazon incubates

AmazonFresh, its full-

basket grocery delivery

service, including

Amazon’s own last-mile

delivery fleet

Masters of Real-Time Retailing… Dynamic Pricing, Merchandising, and Marketing

Source: RNG research & analysis

Prices change by the hour

25-30% of sales are driven

by personalized

recommendations

Amazon’s Dynamic Pricing Model is

Disruptive—and Shoppers Love It

Source: RNG research & analysis

Amazon checks

against its own

platform’s 3P prices

Internal assessments

of the importance of

the ASIN

Pricing

Algorithm Selling Price

Amazon crawls key

competitor’s sites

Shopper-scanned

prices from in-store

MAP/MSRP

Shown Price

Great Price Communication

MAP

When Amazon Wins Shoppers, It Retains Them—

and Grows Wallet Share Exponentially

A $79 annual membership programs entitling members to

free 2-day shipping on over 15M eligible items & access

to a Prime Instant Video

• Launched in the US in 2005 and currently available in

all markets except China

• Prime members visit the site 3X non-prime and

households spend 3-5X non-prime households

An auto-replenishment program for consumables like paper

towels, shampoo, and diapers with free shipping and a

discount of 5% or 15% (with at least 5 subscriptions)

• Launched in the US in 2007 and currently available in

the UK, Germany, France, and Japan

• Accounts for 40%+ of Amazon’s sales in certain

consumables categories

• Instrumental in the growth of many consumables

categories (i.e. Baby)

Source: RNG research & analysis

Amazon Does Have Vulnerabilities

• Its competitors already have large, loyal customer bases and local

inventory—and they’re investing aggressively

• Non-store economics are hard, especially for low-cost, heavy, and

temperature-controlled items

• It is platform-driven, not partnership-driven; some vendors find it

difficult to work with, unwilling to share data, and expensive to fund

• Amazon competes with 3P sellers it increasingly depends on

• It is an item merchant; it doesn’t benefit from the blended economics

(or data) of full-basket models

• Its user experience prioritizes the functional over the emotional – hard

for premium/aspirational/lifestyle brands to accept

• Online category specialists (verticals) can best its one-size-fits-all

approach to merchandising

• It struggles in key international markets, especially as a late entrant

Source: RNG and Ideoclick research & analysis

The Skillset and Playbook for Amazon

Vendors are Different than Brick-and-Mortar

• You do business through Amazon, not with Amazon

• “The internal sell” is as complex as engaging Amazon itself

• Winning the digital shelf requires world-class digital assets (images, copy, reviews, etc.)

• The economics of non-store retailing are complex

• The merchandising menu is long; it’s essential to know what works (and what doesn’t)

Source: Ideoclick; RNG research & analysis

Learn More

For more about Amazon, stay tuned for a webinar on May 1 and the forthcoming release of Amazon in Focus: The Authoritative Guide to Amazon for Retailers and Suppliers

• Amazon In Focus – May 1 @ 1pm EST – Register

– Add to Calendar

– Event Password: Amazon

• Pre-Order Amazon in Focus HERE

• Sign up for the Amazon in Focus Session at the RNG 2013 Mid-Year Forum HERE

– Chicago, June 27th

Questions? Comments?

• Call: 757-270-3839 • Email: RNGDIGITAL@retailnetgroup.com

• Web: RetailNetGroup.com

Amazon in Focus: 200+ Slides, Full-Text

Commentary, & Half-Day Workshop

Amazon in Detail • The growth model explained

• Growth trajectory: country and

category expansion

• Culture & organization structure

• Economics & financial model

• Pricing, marketing, and

merchandising approaches

• Fulfillment center network and

logistics model

• AmazonFresh in Detail

The Amazon Vendor

Playbook • Launching new products on Amazon

• Improving search ranking on Amazon

• Delivering high-performance product detail

pages

• Assortment strategies

• Best funding practices

• Optimizing packaging, pack configuration

and supply chain

• Getting optimal value from Amazon Retail

Analytics (ARA)

• Strategic Vendor Services (SVS) – If, when,

and how

• Managing key third party (3P) marketplace

challenges

• Closing out and liquidating on Amazon