What We Can Learn from Amazon’s 2022 Struggles
It’s hard to remember a time when Amazon wasn’t the dominant force of the ecommerce world. Having grown up from a tiny bookseller operating out of a then unremarkable Jeff Bezos’ garage, to one of only a handful of companies to survive the 90s dotcom crash, to the online juggernaut it is today, it is hard to even have a conversation about ecommerce which doesn’t mention Amazon.
However, recently the ride for this ecommerce titan has not been as smooth as it once was. Among other factors, declining sales and an increase in competition has made the ground Amazon stands on just a fraction shakier than it once was.
Various forces lie behind this decline and it would seem an opportune moment therefore to take a step back and see what lessons we can learn from Amazon’s 2022 struggles and take forwards as we move through 2023 and beyond.
COVID-19
It’s also impossible to have a conversation about the shifting fortunes of any retailer without discussing the impact of the global COVID-19 crisis which upturned the industry just a couple of years ago. And, whilst the worst days of the pandemic are hopefully behind us at this point, it continues to send reverberations through the retail business to this day.
When everyone was stuck at home during COVID restrictions, Amazon, like many other ecommerce brands saw an incredible increase in business. As people desperately sought products to keep themselves entertained, busy, and healthy during these times.
(Image source: ft.com)
As you can see from the above charge the latter half of 2021 and the beginning of 2022 saw sales fall off a cliff for Amazon’s Online Stores unit and the pattern has only continued as we moved further through the year. For your information the slight recovery you can see in Q3 is directly correlated with Amazon’s yearly Prime Day which offers an elegant explanation for this outlier period. Of course, many ecommerce stores saw declining sales once physical stores were allowed to reopen but could there be something more behind the particularly significant slump we are seeing at Amazon?
2022 was Amazon’s first full year since founder and former CEO Jeff Bezos officially stepped down from his hands on role at the company. This has left the brand in a period of significant adjustment which has thus far been defined by a shift from its former hyper-growth mode to one of cost optimization. The retail giant recently announced it was rolling back its plans to open a slew of new fulfilment centers and has admitted that it expanded too rapidly in response to COVID.
"There has been an incredible amount of strain on Amazon’s retail business,” said Director and Publisher at Retail Technology, Miya Knights. "Even things like Prime Day have been less potent in terms of boosts that they can give to sales for Amazon. Amazon miscalculated that the demand for online would sustain at the levels that they saw it grow to during the pandemic. The apex example of that was how they were stuck with too much warehouse space for example.”
The cost of living crisis and other economic headwinds has forced Amazon to reset expectations for the coming years and embark on a massive cost-cutting review.
Shifting Attitudes
Another possible explanation for the changing fortunes at Amazon might be found in the shifting attitudes of customers towards the brand and other mega-corporations – especially from the Millennial and GenZ generations.
According to Forbes, research has shown that nearly half of shoppers (43%) have said they would like to buy less from Amazon and that they often feel guilty for shopping with the brand. The research in question found comparable results among both UK and US shoppers and also discovered that issues related to ESG concerns played an influential role in driving these attitudes.
For example, 40% of GenZ shoppers who participated in the survey said they were less likely to shop with a brand which had engaged in unethical practices such as tax avoidance and the poor treatment of its employees. 44% of e-commerce consumers globally say they have changed their online shopping behaviors due to sustainability concerns. Considering these are all criticisms which have been levelled at Amazon in particular over the last couple of years, it doesn’t take a genius to work out this likely plays a role in younger people turning away from the retailer.
"Ecommerce is here to stay, but the days when Amazon could put whole retail segments out of business (bookstores, for instance) would seem to be over,” reports Forbes. "The next iteration – click-and-collect – is already an important channel for big box retailers and with sustainability and all that comes with it being a challenge, it appears Amazon and all digitally native platforms need to understand how the next gen view them and their offering from a sustainable model perspective.”
Final Thoughts
Where there exist challenges there also exists opportunity. When a massive brand such as Amazon stumbles, there is incredible value in analyzing the causes and using that data to help drive decision making in smaller brands. We certainly don’t think Amazon is going anywhere anytime soon, but other online retailers can exploit its mistakes and hoover up the customers the ecommerce colossus is alienating.
The latest goings on at Amazon is always a hot topic at eTail Boston 2023, being held in August at the Sheraton Boston Hotel.
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