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The End of Amazon

How, when and why the e-commerce giant will fall.
Amazon Chief Executive Jeff Bezos | Source: Getty Images
By
  • Doug Stephens

TORONTO, Canada — It's wildly innovative, persistently disruptive and laser-focused on its customers. Its iconic founder is among the richest men in the history of planet earth. Its growth trajectory is so staggering that brands across the spectrum have little choice but to partner with it or suffer the anguish of competing against it. It is feared, admired, even hated, but above all, it is seemingly invincible.

While this may seem a fitting description of the American e-commerce giant Amazon, these are also precisely the sorts of superlatives used, not long ago, to describe another retailer, one that Amazon founder Jeff Bezos forged much of his go-to-market philosophy around: Walmart.

Between 1962 and the early 2000s, Walmart ruled retail, laying to waste scores of competitors large and small. By 2010 Walmart had opened an astonishing 4,393 stores, with more than 3,000 of those coming after 1990. If retail had a Roman Legion, it was Walmart.

Yet, despite its legendary rise, in 2015 Walmart posted its very first sales decline since going public 45 years earlier and has since found itself fighting an existential, quarter-to-quarter battle to reclaim its mojo. Now, it’s been forced to shed nearly 60 years of skin in a frantic effort to reinvent itself for a world that has changed around it. Whether Walmart survives this new age of retail or not remains debateable, but one thing is certain: the decline of the once impenetrable juggernaut has proven that even the most titanic businesses can fall.

A conspiracy of success is likely to sideswipe Amazon with great brutality and speed.

Ironically, many of the elements that made Walmart so uniquely formidable were also the things that conspired to make it vulnerable to disruptive competitors like Amazon and others.

It’s this same conspiracy of success that is likely, at some point, to sideswipe Amazon but with even greater brutality and speed. Because unlike Walmart, which scaled its business in a largely industrial era where change, competition and consumer allegiance moved at a comparatively glacial pace, today’s retail world is built on digital rails where new ideas, concepts and technologies move at the speed of light and where customer loyalty is just as fleeting.

It’s my belief that within 10 years Amazon will falter and these are just a few of the reasons why.

Parallax Blind Spots

Kodak succeeded in selling film, Blockbuster succeeded in renting videos, Tower succeeded in selling records, and in each case their success created blind spots, with their angle of view making them oblivious to market, technological and consumer changes that should have been obvious. It’s what 1960’s sociologist Arthur L. Stinchcombe termed “organisational imprinting,” a phenomenon where the era in which a company experiences its greatest success tends to freeze its organisational structure and strategy for years — even decades — into the future.

Similarly, Amazon’s success with its current business model may be leaving it inherently blind to important social, economic or technological changes in e-commerce. In fact, in a recent interview Jeff Bezos was quoted as saying: “In our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection.” He may very well be right but what’s dangerous is the predisposition to believe that what made Amazon successful in the past will continue to do so into the future.

It’s worth remembering that during the 1990s Walmart stemmed investment in online commerce in favour of building more of their highly successful super centres. It was a mistake it is still working to recover from. Unless an organisation is prepared to completely change the angle from which it is viewing the market, it will be oblivious to danger or opportunities sitting just outside its view.

Efficient, Effective but Not Fun

As a shopping experience, Amazon is about as elegant and enjoyable as a chainsaw. But like a chainsaw, Amazon is purpose-built to do one thing and one thing only; to deliver the largest selection of products with the greatest level of speed and convenience… period. And if you know what you’re looking for, it’s a sharp tool that works brilliantly.

The problem is that we, as human beings, don’t merely shop to acquire products. Not all the time anyway. We also shop to discover new things, to socialise with friends and to entertain ourselves. We shop for the thrill of the hunt and the associated dopamine rush to our brains when we find it. Amazon seemingly has no interest in these less transactional elements. Shopping on Amazon remains a solitary, static and sullen activity: a Sears catalogue on digital steroids.

Rarely a week goes by that I’m not approached by a young start-up founder working to crack the code of a more immersive, interactive, entertaining and socially connected online shopping experience. When they do, Amazon could find itself in a position where it’s impossible to shift its course.

The Incumbent Mentality

Founder-led organisations are powerful, fast-moving and disruptive. They are often born out of a deeply shared and frequently communicated sense of mission and purpose. They move power and decision making to the front-lines and nurture extreme intimacy with customers. It’s this very founder-led mentality that has driven Amazon to the heights it currently enjoys. Problems arise however, when organisations lose this force, either by the departure of their founder entirely or by scaling to an extent where their founder’s energy and presence becomes so dissipated as to be ineffectual. When Walmart lost Sam Walton, it lost its North Star and proceeded to make decisions that flew in the face of the values that Walton espoused and that customers appreciated.

While Jeff Bezos appears healthy (actually somewhat jacked) the greater risk is that his direct involvement and influence in the day-to-day strategy and execution at Amazon diminishes over time, either by virtue of the scale of the organisation or given his particular passion for non-core aspects of the business such as commercial space travel.

As a founder mentality is replaced by an incumbent mentality Amazon will lose customer focus and will innovate less. The energy once directed at improving the business will be sapped in working merely to sustain the organisational infrastructure. Decisions once made at the frontlines of the business will be pushed to the middle of the organisation and away from the customer, resulting in a fatal loss of loyalty. No longer the underdog, Amazon will lose its unique sense of mission and purpose and become a large, slow-moving target for competitors.

The People Paradigm

Through the 1990s we heard stories of Amazon executives getting rich on stock options and people clamouring to join their ranks. Today, such stories are taking a back seat to tales of Amazon executives requiring therapy for depression, anxiety and other psychological conditions brought on by what many characterise as intolerable pressure and untenable working hours.  We see a steady stream of investigative reports revealing a toxic work environment where warehouse workers refrain from taking bathroom breaks for fear that they’ll be penalised for a lack of productivity. And if that’s not enough, those humans working at Amazon do so among a growing population of robots that are being trained to do their jobs more efficiently and at a lower cost.

Like Walmart before it, Amazon has taken significant pains to quash unionisation but one has to wonder if this is merely forestalling the inevitable. If Amazon workers are disgruntled, eventually Amazon customers will be too. And for a company that has consistently topped the ranks of customer service indexes, even a marginal drop in customer satisfaction could be fatal.

The Bait and Switch Backlash

In 2017, Amazon held three days of meetings in Seattle, calling in a myriad of consumer goods brands, in an effort to woo them onto the platform. The pitch? Come to Amazon and cut out the middleman! Enjoy a direct relationship with your consumers! It all sounded great and since then brands have been running —  not walking — to Amazon. Even Nike, the once chaste and virtuous hold-out opted to just do it, throwing in its lot with Bezos and team.

But here’s the catch…

Behind the scenes, Amazon has established a wellspring of private label brands; over 100 of them to be precise. These brands, some of which are in the market now, and many that are not, span a range of categories from apparel to food and cosmetics to furniture, to name only a few.

So, why on one hand is Amazon inviting brands into the kingdom but on the other hand creating its own brands to compete with them? The answer lies in two simple questions; when something gets sold on Amazon who owns the data? And secondly, who ultimately owns the customer relationship? If you answered “Amazon” to both questions you’re right.

With that in mind, it’s my belief that Amazon is going to use brands and the data they provide as research mice to perfect its knowledge of what categories and specific products to private label, and in doing so will orchestrate the single largest bait and switch strategy in retail history. Consumers searching for the most popular brands will, in virtually every case, be steered toward more cost-effective Amazon-branded alternatives. The push to private label will be tireless in an effort to boost Amazon’s margins. In the longer-term however, brands will steadily defect in search of less adversarial partners. And without brands Amazon ceases to be Amazon.

From David to Goliath

Just as Jeff Bezos used Walmart as his muse in the beginning, he may want to refer to it again in order to avoid a premature end. For brands, this is a cautionary tale. If you’re determined to do business with Amazon, do so with eyes wide open and a parachute packed.

Amazon, whose market cap crossed $1 trillion on Tuesday, is a once-in-a-generation phenomenon that will almost certainly prove to be one of the largest and most powerful companies in the history of the world. And it’s this very fact that should most worry Amazon — and anyone doing business with it.

Doug Stephens is a retail industry futurist, founder of Retail Prophet and author of ‘Reengineering Retail: The Future of Selling in a Post-Digital World.’

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