Amazon: Future Tense

In a previous article, I established that, despite its market domination, Amazon makes little or no profits because the pursuit of low prices has led to very low margins. I asked is there a David out there that can exploit this Goliath‘s weaknesses and what we would lose if we didn‘t have Amazon?

Straightaway we need to remind ourselves that at least one online retailer has already grasped the concept of what is unique about the web better than Amazon. Step forward Apple iTunes, a brilliant idea for selling a product that has no physical substance and therefore no fulfillment costs. Amazon has come late to this game with their Kindle e-books.

National retailers like John Lewis or Sainsburys also have a potential edge with their marriage of shop and online. Customers can use the shop as showroom but buy online (rather than using Waterstones as a showroom then buying from Amazon) or utilise the excellent click and collect. There is still a huge percentage more shoppers visiting shops than buying online which means Amazon are limited by having no showrooms. You might wonder what will happen to Amazon book sales, apart from bestsellers, if Waterstones closes and we can’t check out the books before buying online.

Some retailers make a success of selling own brand products because they have a monopoly. Next, White Stuff and even Marks and Spencer (if only M&S had products people want to buy) are examples of retailers who can set their own prices. Again Amazon lose out because they only sell goods in competition with other retailers.

Independent shops like Your Life Your Style do not have the advantage of either a national chain of outlets or exclusive products, but as I said previously the online competition is not so great for niche products- overheads are the reason for us leaving the high street and taking our chances selling purely online.

Amazon tried to tear up the retailing rule book that said competing on price can only end in tears because you end up with no profit. The key to success in the pre-internet days was to compete on quality, service and marketing. The trouble was, back in the nineties, people were reluctant to change their buying habits to this new fangled internet. Offering low prices was probably the best way to get people to switch to buying online. In fact, tearing up the rule book may be proving as difficult as tearing up a telephone directory.

The Amazon website is a wonderful warehouse but the emphasis is always on the cheapest price. Service is excellent but the clinical photos and bullet point descriptions do little to put across the value of the products. This works when it comes to selling a light bulb or something the customer already knows he or she wants but is no help when you need an uncertain purchaser to make an emotional connection with a product. John Lewis or even our own website do a much better job at persuading someone to buy a product. Its the difference between a description of a teddy bear’s size, colour and materials and a story of a child getting a bear, cuddling it and it becoming her friend. Or a picture of a wine glass and a photo of a dinner party with people chatting and drinking from the glasses.

From the early days of e-commerce, Amazon’s tactics have been the same. The company announced from the start that they would lose money for years while they built up their online business. As a result, they led the way, first as a cut-price bookseller who caught all other booksellers unawares. Then it widened its range of products, before moving into e-books which offer a better profit margin. Its best idea has been to invite other merchants to sell on its site. The virtually cost-free commission it earns from these traders may prove Amazon’s salvation.

If Amazon were to go, I would most miss the company’s tremendous commitment to innovations that make online shopping easier and more attractive to the customer from One-click shopping to rating the products to e-books.

Not that I would bet against Amazon winning the battle for the wallets of online shoppers. Nor it seems would investors who sent Amazon shares up when the results were announced.

How Do We Solve A Problem Like Amazon?

Amazon have announced their latest financial results and we‘ve decided to close our Winchester store and concentrate on our online shop. The two are not connected but it’s easy to see from the figures why some people point the finger at Amazon for the success of online retailing and the closure of shops.

In 2012 your Amazon book purchases, Kindle downloads and the rest contributed to a worldwide revenue of $61,090,000,000. That’s just over $61 billion, if you have trouble with all those noughts. Turnover has increased by something like 45% on the previous year’s $48.08 billion.

So is Amazon set to take over the world of retailing as Britain’s high street shuts up shop? Will someone or something yet defeat it? Or does Amazon, like the Roman and British Empires in the past, contain the seeds of its own destruction?

More than any other online retailer, Amazon established the internet as a trustworthy convenient way to shop. Even though the rise in online retailing has played a part in destroying the high street, it’s too easy to put all the blame on Amazon or even the internet. Online sales are still small (around 13% in the UK), albeit big enough in some sectors to kill profits. Speaking for my shop, I don’t think too many people were checking out our handmade designer products and then buying them online.

There are many other factors that have affected the high street and my own shop. Number one is the economic downturn- people just aren‘t spending like they used to. Out-of-town shopping and department store-like supermarkets were bogiemen long before Amazon. Expensive parking in towns has driven customers into their  arms. I believe that one of the reasons why Winchester High Street is doing relatively well is the lack of competition from a Meadowhall style centre.

Then there’s the abysmal failure of those responsible to respond to shops’ difficulties by offering better rates, rents and bank loans.

Let’s also remember it was iTunes and film streaming rather than Amazon that busted Blockbuster. Even bookshops, most often quoted as victims of Amazon, were already damaged by the abandonment of price fixing which allowed supermarkets to sell all the profitable popular books at knock down discounts.

Nevertheless the ease of purchasing online and the low prices have taken a significant chunk of business from certain kinds of retailing. And Amazon has been the champion in the use of both of these weapons.

Some high street shops may be suffering from Amazon’s power but trading in the shiny new online environment isn’t a lot better. It’s true overheads are a lot lower but so are margins, thanks to low prices. Your Life Your Style will be trading solely on the internet in future, apart from a pop-up shop at Christmas. Like all the other little fish selling online, we can’t ignore Amazon swimming around like a massive pike in a small pond.

I don’t blame Amazon for its encouragement of low- at times lossmaking- prices. It simply recognised that customers searching for the lowest price would drive the rise of online shopping. However low prices are a problem for online retailers, including Amazon itself, and you could argue it’s a problem of its own making.

It may be that Amazon will fail because of that very business model that has made it the giant it is today. Low prices meant that last year its operating profit (what was left after costs) on the $61 billion dollar sales was $676 million. After deductions of interest payments and tax (don‘t act so surprised, they do pay tax somewhere), the net loss- that’s right, loss- was $39 million. Even the operating profit they made in the Christmas quarter was only two cents for every dollar taken. Compare that with the profits Apple or John Lewis make and you can see why it’s not all plain sailing on the Amazon tanker.

So, is there a David out there that might exploit this Goliath‘s weaknesses and what we would lose if we didn‘t have Amazon?

Straightaway we need to remind ourselves that at least one online retailer has already grasped the concept of what is unique about the web better than Amazon. Step forward Apple iTunes, a brilliant idea for selling a product that has no physical substance and therefore no fulfilment costs. Amazon has come late to this game with their Kindle e-books.

National retailers like John Lewis or Sainsburys also have a potential edge with their marriage of shop and online. Customers can use the shop as showroom but buy online (rather than using Waterstones as a showroom then buying from Amazon) or utilise the excellent click and collect. There is still a huge percentage more shoppers visiting shops than buying online which means Amazon are limited by having no showrooms. You might wonder what will happen to Amazon book sales, apart from bestsellers, if Waterstones closes and we can’t check out the books before buying online.

Some retailers make a success of selling own brand products because they have a monopoly. Next, White Stuff and even Marks and Spencer (if only M&S had products people want to buy) are examples of retailers who can set their own prices. Again Amazon lose out because they only sell goods in competition with other retailers.

Independent shops like Your Life Your Style do not have the advantage of either a national chain of outlets or exclusive products, but as I said previously the online competition is not so great for niche products- overheads are the reason for us leaving the high street and taking our chances selling purely online.

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Amazon tore up the retailing rule book that said competing on price can only end in tears because you end up with no profit. The key to success in the pre-internet days was to compete on quality, service and marketing. The trouble was, back in the nineties, people were reluctant to change their buying habits to this new fangled internet. Offering low prices was probably the best way to get people to switch to buying online.

The Amazon website is a wonderful warehouse but the emphasis is always on the cheapest price. Service is excellent but the clinical photos and bullet point descriptions do little to put across the value of the products. This works when it comes to selling a light bulb or something the customer already knows he or she wants but is no help when you need an uncertain purchaser to make an emotional connection with a product. John Lewis or even our own website do a much better job at persuading someone to buy a product. Its the difference between a description of a teddy bear’s size, colour and materials and a story of a child getting a bear, cuddling it and it becoming her friend. Or a picture of a wine glass and a photo of a dinner party with people chatting and drinking from the glasses.

From the early days of e-commerce, Amazon’s tactics have been the same. The company announced from the start that they would lose money for years while they built up their online business. As a result, they led the way, first as a cut-price bookseller who caught all other booksellers unawares. Then it widened its range of products, before moving into e-books which offer a better profit margin. Its best idea has been to invite other merchants to sell on its site. The virtually cost-free commission it earns from these traders may prove Amazon’s salvation.

If Amazon were to go, I would most miss the company’s tremendous commitment to innovations that make online shopping easier and more attractive to the customer from One-click shopping to rating the products to e-books.

Not that I would bet against Amazon winning the battle for the wallets of online shoppers. Nor it seems would investors who sent Amazon shares up when the results were announced.

I Want To Tell You A Story

“I want to tell you a story.”  Like many comedians, Max Bygraves understood the power of the story to attract and keep an audience’s attention.

I discovered recently, having been involved in marketing a new shop, that the best window dressers describe their displays as ‘stories’.  Put simply, it’s that the colours, the props and the products themselves should work together to create an idea in customers’ minds.  This might be that certain dresses and accessories will go well together on a night out or perhaps ‘You can make your mum happy on Mother’s Day’.

In the marketing of entertainment, we too need to tell a story in order to sell tickets.  Fliers, posters or brochure covers communicate in the colours, the style and the words what the show or venue is about.  Bright colours put across fun and excitement- check out Grease’s signature pink.  Black and white suggest something sexy and sophisticated-  think of the consistent effectiveness of Chicago’s marketing even after all these years.

Then there’s the image.  As the old Chinese proverb says, ‘one picture is worth a thousand words’.  (Actually the saying was coined in the 1920s by Fred Barnard, an American PR man, who said it was an ancient proverb to give it more cachet.   Marketing people, eh?)

Love Me Do

We work in show business so we know how much appearance helps.    Brian Epstein took The Beatles out of their jeans and leather jackets and put them in suits and ties.  The story was, we may be revolutionary but we’re loveable and family-friendly too.

Pictures must tell the story of the show. I’m worked on a show called Tango! Tango!   The main publicity photo was a sensuous shot of an entwined couple, not on the dance floor but isolated in a cavernous space with one shaft of light picking them out.  It says everything about the all consuming passion of the dance in an otherwise cold world.

How pictures and text are arranged makes a big difference.  This is sometimes called design—  a concept apparently unknown to some promoters and venues!  In a good design, the eye will move around the advertisement in a journey that will keep the attention, focus it on the key message.  Most importantly, like those shop displays, the images will work together to say something about the show or venue.  The ‘story’ suggests to the customer what they will get out of it accompanied by the information about where and when it can be seen.

The most obvious way of telling a story is through words- whether in a press release, in brochure copy or in a mailing. They offer an excellent opportunity to talk at length about not only the plot but the backgrounds of the stars and what the customer will experience.   It needn’t take 200 words.  It can be done in an advertising slogan.  ‘Lie, Cheat, Steal… all in a day’s work’ said the poster for Glengarry Glen Ross, and that says it all.

‘Feel The Magic’ was a phrase I used.  It didn’t merit serious analysis for its meaning but ‘feel’ and ‘magic’ conjured up for the audience the appeal of going to the theatre.  OK, that’s a very short story.

Like Max’s stories, your words and images must grab the attention, keep them interested and lead to a punch-line, which in our case is another ticket sold.  That’s a good idea, son!

Your Life Your Style vs Your Life Your Style

It’s a challenging time for shopkeepers. Retail sales are stagnant while costs are rising rapidly. And worst of all, I’m in competition with myself.

It’s a challenging time for shopkeepers. Retail sales are stagnant while costs are rising rapidly. And worst of all, I’m in competition with myself.

Let me explain. By day I’m Dr Jekyll running my shop Your Life Your Style in the centre of Winchester. As night falls, I become Mr Hyde the online entrepreneur with my website YourLifeYourStyle.co.uk. As Dr Jekyll, I’m a respectable member of the local community, paying rent and taxes that date from the economic boom, and actually serving real local people. As Mr Hyde, I can go like a mercenary wherever the costs are low- on an out-of-town industrial estate or an Enterprise Zone. I can even set up on the Channel Islands and sell my lower priced products free of VAT.

Mr Hyde’s online retail business also benefits from not needing a shop floor to display products or paying staff who stand around waiting for a customer. The work of picking and packing in a warehouse can be spread throughout the day (or would that be night in Mr Hyde’s case?). I say this knowing that online trading has challenges of its own- competition on a scale that a bricks-and-mortar shop never faces. It’s a Wild West in which many manufacturers are joining in and selling direct to the public. The consequence is usually lower prices than shops charge, even allowing for shipping and the huge marketing costs involved in getting yourself noticed on the web.

Of course, my online business is run from the back of my Winchester shop so it doesn’t benefit as much as some but even so it’s far more profitable per square foot than the front end. I’m not alone in having a dual personality. There’s hardly a shop business around that doesn’t also trade online, trying to get a foothold on the new world before the old one crumbles beneath them.

It sometimes seems inevitable that Mr Hyde will eventually stand alone across much of the retail landscape with Dr Jekyll retaining only a few flagship shops in key locations like London’s Oxford Street or Winchester’s High Street. My only hope for the good doctor and the many customers who still like to shop in person is a major revision of rents and rates to realistic levels. Of course I am writing these words of encouragement during the daytime. In a few hours, when darkness has descended, I fear my hands will once again be stained with shopkeepers’ blood.

A version of this article appeared on the Southern Daily Echo website