The Internet has significantly affected the retail industry in the United States and across the globe. Throughout the United States online sales are approaching $200 billion a year. This is a result of people in their twenties and thirties doing an abundance of their shopping online. The retail share in online sales is steadily increasing from 5% five years ago to 9% in the year 2010 (Zimmerman 2010). This shows how the retail business is greatly affected by the internet. Ultimately, the most affected retail outlet has been Wal-Mart.
Amazon and Wal-Mart are the leading retail companies across the globe. These companies have different ways of selling their products. For example, Wal-Mart is the largest retailer in the world and represents the traditional brick and mortar method of selling merchandise to customers (Jarman 2011). In this case, the customers have to walk or drive to the store, physically select the goods they want, interact with the Wal-Mart employees, and finally walk to the cashier to pay for their goods. This demonstrates that there is physical contact and more interaction among the sellers and buyers in the Wal-Mart method of selling goods to the customers.
On the other hand, Amazon is the largest online retailer in the world. Amazon uses a newer method of selling goods to customers , which is done via the internet. In this case, there is very little physical contact between the seller and buyer (Zimmerman 2010). Buyers use the internet at home, select the goods to purchase, pay with a credit card, and select a shipping method. The buyer looks through various online sites for items they want and at the price they are willing to pay. Finally, the buyer provides the seller with the billing and shipping information. Although in some cases the shipping information is not required especially when buying things like eBooks or iTunes. Ebooks and iTunes can be downloaded instantaneously.
Amazon and Wal-Mart methods of selling goods and services to the consumer differ, since Amazon uses the internet, and Wal-Mart uses the traditional brick and mortar method. Due to increased change in technology and business across the globe, the two retailers have intensified their competition. Wal-Mart has integrated internet selling to its traditional brick and mortar method in order to adapt to the changing world (Jarman 2011). On the other hand, Amazon has perfected the online selling, as well as, renting numerous warehouses and stores to keep their goods. Both companies are currently using the internet for selling their goods. Subsequently, this has changed the financial aspect of both Wal-Mart and Amazon. Wal-Mart has perfected the traditional method of selling, while Amazon has perfected a newer online method of selling goods.
Porter’s 5 Forces Analysis
1. Threats of New Entrants The barrier of entry is medium since there are competing companies. For example, Amazon’s Kindle Fire versus Apple iPad (Zimmerman 2010). The threat of new entrants is medium to low, since new companies are gradually getting into the online business. For example, in December, 2011, eBay made revenues of about $3.38 billion, which is about 19.3% of Amazon’s revenue.
2. Bargaining Power of Suppliers:
The bargaining power of the suppliers is very low since there are many suppliers who are willing to sell their goods online using Amazon.com. The goods are usually sold to a third party, and suppliers are paid quickly.
3. Threats of substitutes:
The threat of substitutes is very low, because of innovative services that improve the quality of goods within a short period of time. There is also high brand recognition for the company that makes it difficult to substitute their products. In addition, there is high customer satisfaction since they get quality goods from the company. The company also offers well-recognized and trusted services. Lastly, this makes the threat of substitution very low.
4. Rivalry among industry competitors:
There is stiff competition among the retail companies. The competition between Amazon and Wal-Mart is very stiff, since both companies are using almost the same methods to remain leaders in the retail industry. Both companies are using an online mechanism to sell their products, as well as, brick and mortar methods to store their products.
5. Buyers bargaining power:
The customers do not shift to other retail outlets. Ultimately, this is a result of the excellent prices Amazon and Wal-Mart offer their customers from being price leaders in the retail industry (Zimmerman 2010). They also have outstanding customer service compared to other retailers. Finally, the bargaining power of customers is very low.
Amazon was founded by Jeff Bezos in the year 1994. Bezos was dedicated to participate in the internet business, which was booming during that time. Amazon began as an online bookstore. Within the first two months the company sold books to all 50 states and over 45 countries. The sales went up by $20,000 per week. Jeff Bezos gave the company the name Amazon which was one of the largest rivers in the world, as he hoped the company would be someday. The company’s logo is an arrow leading from A to Z representing that they sell every product from A to Z.
Amazon was incorporated in 1994 in the state of Washington. By the end of 1995, the company went public. In the year 1996, it was reincorporated in Delaware. Amazon was traded on the NASDAQ stock exchange in the year 1997. Within the first four to five months of going public, Amazon did not make a profit. As a result, the stockholders complained about the slow growth of the company. Amazon was able to survive the dot-com bubble that burst in the 21st century. Amazon grew past the dot-com bubble and became a major player in the online business. In the year 2001, Amazon made its first profit of $5 million.
People concluded that Bezos’ unconventional business plan would work. Amazon has made several partnerships since its inception. In the year 2006, it partnered with ToysRUs.com, although the relationship was later terminated due to a lawsuit. Amazon also hosted and managed the website for “Borders Bookstores”. That relationship was terminated in 2008. Amazon also hosted the retail website for Target from 2001 to 2011. They also partnered with Benefit Cosmetics, which launched a major E-commerce platform based on Hybris software and Arvato systems.
Amazon operates retail websites for Sears Canada, Bebe Stores, Timex, Marks & Spencer, Mothercare and Lacoste. In October 2011, Amazon .com announced a partnership with DC comics for exclusive digital rights to many popular comics such as Superman, Batman, and Watchmen. The partnership caused well-known bookstores like Barnes & Noble to remove these titles from their shelves.
Amazon has offices, warehouses, customer service centers, and software houses spread across North America, Latin America, Europe, Africa and Asia. The headquarters are located in Seattle’s south lake union neighborhood. In Europe, the headquarters are located in Luxembourg’s capital. Amazon has development centers located in a variety of countries across the globe. Amazon’s fulfillment centers are located in 15 states throughout the U.S. The centers provide order fulfillment to third party sellers and warehousing.
These warehouses are staffed with only a few employees. The employees unpack and inspect the incoming goods, place them in the store, and record their location. They also select the goods, and make up each individual package for shipping. To locate the goods easily in the warehouse, employees use a central computer system which records the location of each good, and maps the route for packaging employees. The employees also carry hand-held computers that communicate with the central computer system, and monitor their rate of progress.
Amazon sells a wide range of retail goods. Some of the products sold include books, Blu-Ray’s, computer software, consumer electronics, kitchen items, tools, lawn and garden items, toys, video games, baby products, apparel, sporting goods, gourmet food, jewelry, watches, health and personal-care items, musical instruments, industrial and scientific supplies, and groceries. In the year 2007, Amazon announced “AmazonFresh”, a grocery service offering perishable and non-perishable food items. The items are delivered to customers at specified times throughout the day. Amazon also offers a discounted price on an item and free shipment once you sign-up for Amazon’s “subscribe & save program”.
Amazon launched the “Amazon Kindle” in November 2007. This e-book reader downloads content over “Whispernet” via the sprint Nextel EV-DO wireless network. By March 2011, the Amazon Kindle had over 850,000 titles. In September 2011, Amazon announced entry into the tablet computer market by introducing the “Kindle Fire”, which runs a customized version of the Android operating system.
In the year 2010, Amazon announced that e-book sales for its Kindle reader outnumbered sales of hardcover books for the first time. During this period, 143 e-books were sold for every 100 hardcover books. This shows that online business has surpassed the traditional method.
Amazon was able to sell music online by launching “Amazon MP3”. This enabled the company to sell downloads exclusively in MP3 format without digital rights management. Prior to the launch of this service, Amazon had made an investment in Amie Street, a music store with a variable pricing model based on demand. Amazon became the first online offering DRM-free music from all major record companies. By the year 2008, Amazon was rolling out MP3 services to subsidiary websites worldwide. In the year 2012, Amazon announced it would be adding a gaming department to its company titled “Amazon Game Studios”. After Amazon’s Game Studio opened, they introduced well crafted games and videos. This was to cater for the customers’ needs. This year Amazon has announced its launch of “AutoRip”, a digital music service.
Finally, Amazon has a number of its own trademarks. In the year 2005, Amazon began selling products under private label, “Pinzon”. Initially the label was for textiles and other household goods. Later the company expanded the trademark to cover a more diverse list of goods. Another private label used by Amazon is “Amazon Basics”, which is the private label for their electronics product line.
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