Insights

2017 E-commerce Recap

2017RECAP

2017 was a landmark year for e-commerce, technology, and retail. While Amazon has stayed at the center of most headlines, the effects of its growth and various investments are being felt across many industries. Today, we’re reflecting on the events that left a lasting impression on us during a year lined with big, transient events that seemed to bleed into one another.

Amazon reaches 90M Prime subscribers in the US

With such a solid Prime subscriber base, which accounts for around 70% of US households, Amazon has established Prime as the norm for both e-commerce and commerce in general.
 

Questions brands should be asking:

  • How are we investing in the Amazon customer experience, which is becoming a more important part of shopping journeys that end on and off Amazon?
  • In 2018, will we devote more resources into controlling our Amazon content, supply chain, and 3rd party sellers?
    Why are some brands continuing to avoid controlling their Amazon presence?

 

Amazon acquires Whole Foods

With an acquisition that’s shaking up the natural products and grocery industries, Amazon is injecting its signature blend of logistical and e-commerce capabilities into Whole Foods. With the biggest purchase the retail giant has made to date, Amazon spread its reach to hundreds of brick-and-mortar locations overnight, expanding touchpoints in grocery, CPG, and distribution capabilities.
 

Questions brands should be asking:

  • How will consumer behavior and product preferences change due to this acquisition?
  • Will product selection remain a strong driver?
  • What are the supply chain and distribution implications of the Amazon-Whole Foods model?
  • What new opportunities does this create for us?

 

Nike announces a partnership with Amazon

We see 2017 as a great awakening for brands who have recognized the importance of adopting an Amazon strategy. Nike’s partnership with Amazon is perhaps the clearest example of this. While Nike products are available on the marketplace from authorized and unauthorized 3rd party sellers alike, the sportswear brand intends to take control of its content, customer experience, and pricing by partnering with Amazon.
 

Questions brands should be asking:

  • How will this partnership influence the Sports and Outdoors industry’s relationship with Amazon?
  • What companies will choose to partner with Amazon next?
  • Is selling directly to Amazon and relinquishing creative control going to allow Nike to create the customer experience they’re looking for?

 

Amazon makes a big push for apparel

In an even bigger push to make online apparel shopping a household practice, Amazon has launched several clothing brands. The most notable is women’s shoes brand The Fix, which creates competitive advantage by introducing new styles each month, making use of a manufacturing model that outpaces traditional brands. The scope of apparel categories (shoes, sportswear, etc.) available through Amazon’s white label companies has grown substantially in 2017. Additionally, several brands are available exclusively to Prime members.

Furthering their attempt to attract apparel purchases on their marketplace, Amazon announced Prime Wardrobe, a program that allows users to try, buy, and return clothing items with ease. As major pain-points for consumers purchasing apparel online include returns and not being able to try clothes on, Amazon allows Prime members to simply leave a box outside their door for pickup, and rewards shoppers who keep all their purchases with discounts.
 

Questions brands should be asking:

  • How will this influence apparel brands that are focused on Amazon success?
  • Will Amazon reduce promotions for brands it doesn’t own?
  • What can established apparel brands do to retain long-standing customers?
  • How can brands overcome traditional manufacturing constraints (lengthy production times, etc.) and build a fashion brand based in real-time customer demand?

 

Amazon and Netflix spend a combined $10B on video content

With a push to compete with other membership platforms like Netflix, Hulu, and HBO, Amazon increased their original content budget to $4.5 billion. While this may initially seem irrelevant for brands selling products on the Amazon marketplace, we view Amazon’s focus on original video content as a push for Prime subscriptions. In its Q3 earnings report, Amazon Prime membership revenue signaled strong growth (up 59% year over year). A key driver to this growth are the added benefits couched in every subscription, including original video content. The typical Prime subscriber spends an estimated $1,300 per year, which is almost twice as much as the $700 per year average a non-member spends.

To further incentivize Prime subscriptions, Amazon has become the livestreaming partner for the NFL and NBA and has made the programming available through Prime video.

Following Amazon’s plans to spend $4.5B on original video content in 2017, Netflix spent an estimated $6B on content this year. Although Amazon’s video streaming service serves primarily as a Prime subscriber acquisition tool (for the time being, at least), Netflix felt pressure to not fall behind, and as a result, produced many critically acclaimed and award-winning TV series and movies this year.
 

Questions brands should be asking:

  • As the number of Prime subscribers increases, what innovations is Amazon planning to further enhance the customer experience?
  • Will shopping and streaming video be further integrated in the future?
  • Will Amazon be able to surpass Netflix in the video streaming market?
  • Amazon is influencing markets well outside the traditional retail sphere. What markets will Amazon put pressure on in 2018?

 

Voice assistants make their mark — especially Alexa

With their push for voice and smart home integration, Amazon is further solidifying their brand and marketplace in households. In 2017, Amazon gave many discounts to individuals purchasing with Alexa, including Prime Day deals that were only accessible through voice. Currently, Amazon is seeing the most success through reordering of household products, and has launched Alexa-only reordering campaigns to encourage repeat purchases.

Additionally, Amazon’s top two products from Prime Day were both Echo devices.

Google Home, which utilizes Google Assistant, has been doing their best to keep up with Amazon’s Alexa. Google released a Home Mini to compete with the Echo Dot, sporting the exact same concept, price, and even a similar “add to any room” marketing lingo. Google recently announced a Home device with a screen, which is being seen as an Echo Show competitor. Finally, Apple will be releasing HomePod, their Siri-enabled smart speaker, in early 2018 to compete with Amazon and Google.
 

Questions brands should be asking:

  • How will Alexa’s growth influence the CPG market, particularly for premium brands?
  • When and how will voice ordering become common for non-household items?
  • Alexa is the only voice assistant that can order on Amazon. To what degree does this influence Amazon’s success in the market?
  • Will Google put more emphasis on their localized e-commerce platform, Google Express, to compete with Amazon and Alexa?

 

Walmart takes Amazon head-on with Jet.com, their recently acquired e-commerce startup

In a move that intends to expand their customer demographic, Walmart has been targeting younger shoppers with Jet.com. Liza Landsman, Jet’s president, stresses the importance of Jet building an “emotional connection” with customers, rather than a purely transactional one. This year, Jet launched a private label CPG brand called “Uniquely J” to combat Amazon’s “Wickedly Prime.”
 

Questions brands should be asking:

  • Is there space for other e-commerce platforms to have success in the market?
  • Amazon has the resources to offer low prices, free shipping, and add-ons. Is it possible for Jet or other e-tailers to compete?
  • Should brands consider developing a Jet.com strategy?

 

Target shifts delivery toward speed and sustainability

To compete with Amazon’s speed and convenience, Target beta-tested a next-day delivery program on common household items in the Minneapolis area. “Once the pilot is live this summer, Minneapolis area guests that have a REDcard will be eligible to visit a dedicated online experience to access thousands of household essentials,” Target said in a press release. Still, customers had to pay “a low, flat fee” for deliveries.

Following the beta test, Target announced a $550 million purchase of Shipt, a same-day grocery delivery startup. Target claims that this acquisition will bring same-day delivery to about 50% of their stores by 2018.

Through five new initiatives, Target has set in place a plan to increase package sustainability. This mirrors Amazon’s efforts to increase sustainability and customer experience with their FFP (Frustration-Free Packaging) program, along with other sustainability efforts.
 

Questions brands should be asking:

  • If Target can successfully implement next-day delivery, will it be able to stand up to Walmart and Amazon?
  • Will sustainable packaging influence customers to choose one retailer over the other?
  • Both Amazon and Target are focused on household items, convenience, and repurchasing. What will Target do to differentiate itself from Amazon and be attractive to consumers?

E-commerce saw an incredible year of growth. Amazon alone saw a stock price increase of over 50 percent, peaking at nearly $1,200 per share, and a valuation above $550 billion.