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Commentary: New Opportunities for New Models

Amazon.com surprised everyone in late January when it announced North American revenues were up 18 percent for the fourth quarter of 2008, and its earnings grew almost 10 percent compared to the year earlier fourth quarter. Worldwide sales of electronics and other general merchandise sales grew 31% to $2.89 billion for the quarter.
 
One aspect of Amazon's success was that they had a successful new product that generated a lot of interest and did well: the Kindle electronic book reader.
 
What does that have to do with distributors? I think there are several important lessons for distributors when you start to look beyond the numbers. To start, last quarter was the worst holiday shopping season in decades for traditional retail across all categories.
 
So how did Amazon buck that trend? I think it's an indication of a shift in consumer buying habits. Even if we intend to go buy something at the mall, more of us are first researching product choices and pricing online.
 
Many still will go and want to physically inspect the goods before pulling out the credit card, but often pre-select the store to purchase from online.
 
I think Amazon's good news among the bad has a lot to do with adoption of broadband Internet. When all we had was dial-up, viewing pages with lots of graphics, such as catalog and product description pages, was painfully slow. It killed the shopping experience. High-speed online shopping has provided convenience, comparison, efficiency and more trust in the security of transactions.
 
Amazon spends a lot on marketing, but not on print catalogs, store locations, a direct sales force or even direct mail (on a comparative basis to more traditional international retail businesses).
 
They are masters of email marketing, with a much lower cost factor than the marketing efforts of their storefront competitors. Amazon's awareness and brand presence with consumers is strong. They did not have to discount like their competitors for the 2008 holiday season, which preserved their margins.
 
The lesson is not to remake your business like Amazon, but to leverage all available means to strengthen and grow share in a tough time. Just as consumers are shifting shopping habits, businesses are increasingly using online tools to reduce cost, increase efficiency, market and sell more efficiently.

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