business news in context, analysis with attitude

Yahoo! Finance has a story saying that "Amazon is set to hit a major milestone in 2024: Becoming the largest retailer in the US, according to J.P. Morgan analysts Doug Anmuth and Bryan M. Smilek.

"If this comes to pass, Amazon will be unseating Walmart as the country's largest retailer. It would be a seismic shift, one driven by increased e-commerce penetration, faster delivery times, and the stickiness of Amazon Prime. J.P. Morgan estimates show that, in 2023, Amazon's gross merchandise volume, or GMV, will grow 11.6% year-over-over to $477 billion."

The story goes on:

"This kind of growth shows the sort of resilience that Wall Street has been hoping to see out of e-commerce businesses, which had a tough 2022. Though e-commerce businesses like Amazon saw major booms during the pandemic, last year saw a pullback. It was the first year since 2009 that US e-commerce grew less than 10%, the analysts noted, adding just 8.5% year-over-year, 'likely driven by macro pressures, the resurgence of [brick-and-mortar] retailers, and the shift toward omni-channel retail following the pandemic,' Anmuth and Smilek wrote on June 20."

At the same time, Motley Fool posted a story about "a significant advantage the company has" that is "hiding in plain sight."

That advantage, Motley Fool writes, is the Subscribe & Save component of its Prime membership program.

Motley Fool writes:

"One of the more useful trappings of Amazon Prime is Subscribe & Save (S&S), the company's recurring shipments service. The program allows customers to opt for regularly scheduled deliveries of their most-used or favorite items at set intervals.

"For example, my dog will go through a bag of kibble roughly every 30 days, so I have a delivery scheduled once per month. The bag shows up on the same day every month without me having to remember to order it or lug a 28-pound bag through the grocery store. In return, I save about 10% off the advertised price.

"The program works best with repeat purchases, and the savings ranges from between 5% and 15%, depending on the item. Furthermore, Amazon offers a range of quantities and delivery schedules to fit the needs of virtually every customer. 

"Recent data suggests this program is a big incentive for Prime customers, making them even more lucrative. Prime members that use the S&S service spend roughly $2,050 per year on Amazon on average, compared to $900 per year for Prime members not using the service, according to CIRP.

"Digging a little deeper, the average S&S customer spends about $500 annually on the program. This suggests that these most lucrative shoppers are already spending about 50% more on non-S&S orders then their Prime subscriber peers. If these figures are even close to accurate, this suggests a big opening for Amazon.  By offering generous discounts on its recurring delivery of items, Amazon has gradually built a sizable foundation of S&S shoppers, but the number pales in comparison to its Prime customer base. The data suggests that only 28% of U.S. Prime subscribers have an ongoing S&S order.

"Amazon could conceivably promote its S&S service more heavily, increase the discounts, or even add more items to the list of those eligible for the program. This could act as a powerful device to attract more users to the S&S service, further leveraging Amazon's most lucrative shoppers."

KC's View:

No argument here.

As I've said here numerous times over the years, I am a committed Prime and Subscribe & Save customer - I have about 60 items on my subscription list.  Some come monthly, some every two months, some every three or four months, and a few every six months.  They are all items that I used to buy in traditional stores, but no longer do, because they are regular purchases for which there is absolutely no advantage in buying them in a physical shopping environment.  (To be honest, I was surprised by how many subscriptions I had when I counted them up - I thought it would've been about half that.  And I grant you that I'm probably way, way over the average in terms of number of Subscribe & Save subscriptions.)

Almost from the beginning of my Subscribe & Save experience, more than a dozen years ago, I've been arguing here and  in speeches that retailers not named Amazon needed to figure out a way to get into the automatic replenishment business at the consumer level.  To not do so is to leave a lot of money on the table.  To do so would mean creating a consistent and predictable sales pattern over months and years, but even more important, would help to establish and cement relationships with regular and frequent shoppers.

To be clear, though, this is not a secret weapon that Amazon has.  As Motley Fool says, it is hiding in plain sight.  And if I would criticize Amazon for something, it would be that it has not marketed Subscribe & Save aggressively enough.  It has not extended its benefits, say, to Whole Foods shoppers.  It has not made turning Prime members into Subscribe & Save customers a high enough priority.  Amazon has been, in this case - and this is not a word I normally would use to describe Amazon - timid.

Competing retailers cannot afford to make the same mistake.  I'm sure that there are lots of organizational and infrastructural reasons not to commit to the automatic replenishment business at the consumer level.  But I'd be willing to bet that none of these reasons are good.  They just reflect a we've-always-done-business-this-way attitude.  And a sense of timidity that is out of step with how retailers need to compete in 2023 and beyond.

Let me rewind one passage from the story for you:

Recent data suggests this program is a big incentive for Prime customers, making them even more lucrative. Prime members that use the S&S service spend roughly $2,050 per year on Amazon on average, compared to $900 per year for Prime members not using the service…

With almost 200 million prime customers, this is actually a positive stat to me: The data suggests that only 28% of U.S. Prime subscribers have an ongoing S&S order.

What that tells me is that there is a lot of potential for automatic replenishment.  For Amazon, with Subscribe & Save.  And for competitors that embrace the opportunity.    And, in the end, for those that don't, there is the potential for irrelevance and obsolescence.

One final thing.  Full disclosure:  Tom Furphy, who joins me here for The Innovation Conversation on a regular basis, led the team that launched Subscribe & Save.  And, subsequent to his leaving Amazon, Tom has led a new team that created Replenium, which offers automatic replenishment at the consumer level capabilities to other retailers.  But my feelings about auto replenishment have nothing to do with that - I've been making this argument since before Tom and I became friends and started The Innovation Conversation.  It is just a happy accident that he happens to run a business that I think is transformational for retailers who take advantage of the offering.