Amazon’s latest quarterly results have raised more than a few eyebrows in the business world. Despite its position as a sell-anything-to-anyone internet retailing organisation, it posted significantly larger losses [$544 million] than expected, and warned that Q4 2014 looks set to further disappoint.
Yet investors will be well aware that it doesn’t take much for a loss-making online company with such a global reach to generate significant profit. Just look at Facebook, which went from a loss of $138m in 2007 to over $1bn in the black five years later.
However, Amazon has been growing rapidly since it was founded in 1995 and investors might well be tiring of its struggle to turn vast revenue into consistent profits for shareholders. Amazon continues to expand and grow, but fails to yield profit despite being a global brand with huge recall.
Amazon’s continued focus on developing new products and services, often unrelated to its core function as an online retailer, perhaps risks alienating consumers.
As Tesco has recently shown, even huge retailers can see their revenue drop significantly – in Tesco’s case predominantly to discount supermarkets.
Tesco’s focus on huge outlets offering not just traditional groceries but also a wide variety of products and services – such as mortgages and mobiles – coupled with bad PR has seen it alienate its core consumer base. Equally, its efforts to pull in digitally savvy consumers with its budget tablet Hudl and video-on-demand service Blinkbox haven’t caught the public’s imagination as much as Tesco would have hoped.
Tesco is now in the difficult position of having to sell off these peripheral offerings, partially floating Tesco Bank and potentially closing or selling the loss-making video-on-demand service Blinkbox, and getting back to its core retail offering.
For Amazon, however, profits have been hit by the online retailer’s heavy spending on acquisitions, enabling it to move into new product categories, such as its Amazon Fresh grocery delivery service in the US. Yet, at what cost is this to the future of the business?
As Tesco has sorely demonstrated, there’s a fine line between expanding into new areas that consumers want, and over-expansion, which leaves consumers behind and looking elsewhere.
Amazon needs to focus on what consumers want and needs to place this at the heart of any new offering. As former Tesco chief executive Sir Terry Leahy said, the retailer had “focused too much on what it isn’t, rather than remembering what it is”.
As at Tesco, Amazon has increasingly diversified away from its core – the online retail environment – one that many consumers feel loyalty towards and consistently buy from to fit in with their busy lifestyles.
Take the Amazon Fire phone, which has proved to be unsuccessful so far for Amazon. The company wrote off $170m worth of inventory following a lack of sales, which is a staggering 40 per cent of the recent net loss it posted. The smartphone market is highly competitive and despite a great product it seems Amazon gambled on consumer loyalty, which hasn’t translated into sales for the Fire. After all, just because I like Amazon for buying gifts, doesn’t mean I want the Fire phone. It also doesn’t mean I want them to deliver my groceries once a week.
For example, many will sign up to Amazon Prime for the free next-day delivery, which saves money for anyone who regularly purchases on the site and wants their items quickly. Prime subscribers also get access to one title per month from a digital library of Kindle titles and access to Prime Instant Video (usually £5.99 a month). Amazon even announced recently that Prime subscribers can benefit from unlimited photo storage, previously only available to owners of Fire devices. It’s a great range of services for a relatively low fee, but perhaps consumers are still left wondering whether Amazon is a delivery company, a media company or an online grocer.
Tesco made the mistake of attempting to be everything to everyone and we’ve seen the results. Amazon needs to be disciplined about who it is trying to reach, when it wants to reach them and how its offering can help enhance their lifestyle. There are other established brands and retailers who specialise, not dabble. Consumers have a choice and we must never underestimate the importance in providing a seamless customer journey only traditional specialist brands and retail can deliver.
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