In The Physical Commerce World, Amazon Is A Startup

When Amazon acquired Whole Foods in August 2017, the clicks and bricks strategy was instantly validated by a $13.7 billion dollar bet. The business media celebrated the marriage of digital to traditional retail.

Suddenly the largest and fastest-growing e-commerce company Big Tech has ever seen expanded its presence in the physical retail space exponentially.

By leveraging Whole Foods’ reputation and loyal customer base, Amazon gained access to Whole Foods’ distribution network and supply chain, which is helping Amazon improve its delivery speed and efficiency.

The fact that Whole Foods operates in a lucrative niche in the organic and natural food segment, is beside the point. The strategy of marrying digital commerce to commerce in the physical world applies to every retail sector.

The Disruptive Innovator’s Moonshot

Amazon is finding serious traction in cross-selling Prime membership, Echo devices, and online grocery ordering. Considering the fact that physical commerce in retail stores still commands the lion’s share of consumer spending it behooves Amazon to use its digital dominance to steal market share from its biggest competitor: retail stores.

But it’s definitely not a foregone conclusion that Amazon has what it takes to overcome the gargantuan obstacles in its path. In its quest to conquer the offline world, Amazon will need to reinvent itself.

Amazon Isn’t A Monopoly So More Retail Deals Will Be Approved

Although Amazon commands 37.8% of the US e-commerce market, it still accounts for just 4.6% of total US retail sales including online and offline transactions.

This statistic will likely resonate with antitrust regulators in Washington as a plausible response to any objections to future physical retail acquisitions by Amazon.

All of which leads to a fascinating question. Why hasn’t Amazon followed up on its acquisition of Whole Foods by applying what it learned to other mass market retailers like TJ Max, Homesense, Marshalls, Homegoods, Target, and Best Buy?

Competitors Over Its Shoulder

Walmart isn’t going away. Although it’s still a distant second to Amazon in digital commerce at 6.3% share of spend, Amazon is keeping its eyes peeled in the rearview mirror because objects are always closer than they appear.

Walmart’s free next-day delivery or Target’s same-day delivery are giving it a run for the money. The e-commerce behemoth is embracing Andy Groves’ “only the paranoid survive” ethos by continuing to take big risks by innovating inside its test foothold in retail.

Case in point, it introduced a new checkout technology called Amazon One at Whole Foods stores in the U.S. in April 2021. Amazon One is a palm recognition service that allows customers to pay, by hovering their palm over an in-store device without needing to scan any items or use a cashier.

It is currently available in more than 200 Whole Foods Market locations across the U.S. and will be rolled out to all 500 stores by the end of 2023.

The Business Model Of The Century

So executive leaders at Amazon are acutely aware that offline retailers are not going to give up easily, and they will find ways to leverage their strengths and compete with Amazon by stealing a page from its bricks-and-clicks playbook.

According to the data from the U.S. Census Bureau, the percentage of commerce that is still conducted in retail stores is so vast that it’s difficult to comprehend the immensity of Amazon’s uphill climb.

As of July 2023, the total retail sales in the U.S. were $621.7 billion compared to $209.5 billion from e-commerce. This means that e-commerce accounted for 33.7% of the total retail sales in the U.S..

Even though that is a significant increase from 16.1% in July 2019, despite the rapid rise of e-commerce, physical retail stores still dominate the U.S. market, as they provide unique advantages such as personal service, sensory experience, social interaction, and instant gratification.

Amazon’s Offline Expansion Strategy

That’s why it’s likely that the future of retail will be a hybrid model that combines the best of both online and offline channels.

In the next issue of Business Intelligence Weekly, we’ll explore some scenarios and propose strategic options for Amazon to acquire leading offline retailers while revealing the strengths, weaknesses, opportunities, and threats of every potential move.

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