Is Amazon Killing your LBS?
The cycle looks like this. Let's say you are a retail store, and you use Amazon for fulfillment. In this model, Amazon will warehouse your inventory, pick, pack and ship your product, in addition to acting as your marketing arm and your cash register. Nice deal.
Most tri-leaning bike, swim and running stores do their own warehousing and fulfillment, warranty, returns, because they also act as brick and mortar specialty stores. A bike store might be your LBS, if you live proximate to it. On the database of the 500 tri-leaning bike stores in North America that we maintain, 160 indicate that they have eCommerce online stores as an adjunct to their selling efforts. Out of our listing of 150 tri-leaning running stores, 40 of them have eCommerce sites. A few of these almost-200 digital and brick and mortar hybrids are Amazon "sellers" and, if you're a retailer and your store is among these, Amazon still acts as a second window to the world, as well as a second, digital "cash wrap."
Amazon is an amazing strategic partner for stores of this model. Roy Lazarus, owner of Trivillage.com, says of his Amazon relationship, "They are a marketing monster. I don't know anyone who can match the marketing power of Amazon. Plus, safety, identity theft, you don't have to worry about it."
But there are downsides and maybe even a dark side to doing business with the online retail juggernaut. If you're an Amazon partner store Amazon, by design, mechanically, necessarily, knows your inventory; knows your inventory turns; knows what models and sizes sell most briskly; and it knows this not times one, but times however many stores like you there are in Amazon's universe selling products made by, say, TYR, or Zoot, or 2XU or Pearl Izumi.
If you're one of these Amazon-affiliated stores, yes, Amazon is your strategic partner. But it's also got an engine that aggregates an unparalleled set of metrics that grants it a huge strategic advantage over you. It knows when it's time to contact your vendor directly; what SKUs to order; and how deeply. How? Because you and those stores in your competitive set took Amazon to school. You taught it your business. And, instead of Amazon paying you tuition, you paid it. Amazon is in a position to mine the data of its partner stores in order to become a mega-competitor of the very retailers with which it is in business.
I sent a correspondence to Amazon's PR department, asking Amazon if this is how it works, or whether I've gotten it wrong. I got no reply. However, I was alerted to the above by a manufacturer who was contacted by Amazon, and who told me that this is his understanding of how and why he got contacted—his products were selling so well via his Amazon-affiliated specialty stores that Amazon took notice and contacted him directly, asking to be a customer.
How do these retail stores feel about that partnership, if Amazon is using sales and inventory numbers to know when it's time to cherry pick their most valuable brands?
"The first thing I do is look and see if Amazon sells it direct," said Mike Stuart, owner of Justwetsuits.com. "I won't take the line. If you sell on Amazon, I'm not going to sell your product."
Still, Amazon offers features to manufacturers beyond just the ability to be a monster account. "We spend a lot of money on Amazon telling our story," said Johnny West of 2XU. "Not only can we tell this story on Amazon, but the customer reviews help tell that story as well."
West notes that 2XU pays a premium to fashion pages that tell an expanded story. In a way, 2XU can create something akin to its own catalog pages on Amazon and these, along with the positive reviews from Amazon buyers 2XU is confident it will get, forms a narrative that a lot of specialty stores would struggle to tell.
West says that the stores that also sell on Amazon, like Triathletesports.com, do not suffer a downtick, because 2XU's own efforts on Amazon are not directed at the triathlon channel, rather at sports like soccer and football, where the specialty store opportunities customers might enjoy are very limited. I tried to ask Triathlete Sports whether this is the case, but I got no reply.
Brent Smith, who runs team sales for the swim channel at TYR, echoes this. TYR is almost unique in that it has caché, and enjoys great sell-through, in its chain of specialty stores, yet it also runs a robust business through the mass market channel. Smith maintains that if Amazon takes a line directly, that doesn't necessarily mean a downturn in sales for a specialty store. He's right, at least for his brand, at least among those interviewed. "We're growing every year with TYR," said Lazarus of Trivillage. "As bad as it is that they [TYR] have gone directly to Amazon, they [TYR] remain in the top-10 in our year-over-year growth."
Retailers have a second complaint about Amazon that has to do with pricing. Amazon is happy to hold MSRP, these retailers say, but if anyone out there in the internet multiverse doesn't, Amazon (several retailers interviewed contend) matches the lowest advertised price.
"Amazon is ruining a lot of good brands," according to Justwetsuits' Stuart. "Amazon tells the manufacturer, 'We'll sell the products at MSRP,' but I believe they have a system whereby after so many days, if the product doesn't move, Amazon cuts the price. They have taken some brands that we can no longer be a dealer for, because Amazon discounts some products so deeply, why would we want to compete with that? The manufacturer says to us, 'You must sell at retail price,' but Amazon takes a third off in some cases."
I could not independently verify whether Amazon discounts the retail price of a product based on days-in-inventory, as Stuart suspects, nor whether its prices are always the lower of either MSRP or the lowest online advertised price.
Stuart also felt that valuable customer service gets lost. "Here's the part that's very discouraging. Our manufacturers are well represented. You might have Trivillage, Pleasuresports, Justwetsuits, we're there; we can give good service; answer questions; yet the manufacturer will go direct to Amazon and I can't figure out why. Amazon can't answer questions or handle warranty issues. They can just sell it. The manufacturers just throw us out with the dishwater. So I place as much blame on the manufacturer as with Amazon."
There are upsides for retailers who have an affiliation with Amazon beyond the obvious ability to reach a huge audience and to sell to it safely. Remember that engine that allows Amazon to know when to contact a vendor directly? That engine is also used to its partner retailers' advantage. Let's say that you're a retailer carrying wetsuits, swim goggles, and compression wear. Aqua Sphere's popular Kayenne goggle comes in 7 colors and 2 lens tints. How many retail specialty stores are going to stock deep in all 14 of these SKUs? As an Amazon retail affiliate you don't have to in order to make sales on Amazon. Your inventory is aggregated with that of the other stores that sell this product, presenting a full inventory to the end user. Orca 226 Tri Pants? Five sizes times three colors equals 15 SKUs. One wetsuit model? Up to 19 sizes. That, times each model, is a lot of SKUs! All Amazon partner stores become aggregated into what amounts to a huge, well-stocked virtual warehouse.
But while Trivillage's Lazarus recognizes these benefits, he is still torn: "Some of these vendors, we have these conversations [about how specialty stores will be protected], and it's insulting [when that protection is not forthcoming] since we're working twenty-four-seven. At the beginning of the year we go into every season with a plan toward growing these brands, only to see the brands go direct with Amazon. Sellers that don't stick to MSRP, that kills guys like us. If it's two weeks into the season and it's already 10 or 20 percent off, that's hard. And it devalues the brand."
One thing every brand manager says, without fail, even those who sell a lot of inventory to "big boxes" like Sports Authority and Dicks, as well as to Amazon: they all say the small online and brick and mortar specialty stores are their most important retail channels. And they're correct. Big boxes aren't interested in brands the specialty stores haven't, through their hard work, built and developed. But it's undeniably hard for a brand to grow top line sales without some mega sellers as customers.
Nevertheless some manufacturers, while recognizing the allure of having Amazon as a direct account, also feel they need to keep faith with their specialty stores, and resist the temptation that one mega account like Amazon represents. Some brands' products are available on Amazon, but only through its stores that have Amazon partnership.
For the end-user, there is little short-term downside and a lot of upside. Amazon is easy. That's why it's so big. Navigation is easy, ordering is easy, paying is easy, returns are easy.
But the question of whether Amazon is ultimately good or bad for a niche manufacturing community like triathlon is not that easy. That would include the apparel, wetsuits, footwear, bicycle accessories, swim accessories, nutritionals—pretty much everything triathletes buy with the possible exception of the bicycles themselves.
This is not a trivial topic. Only one in three Slowtwitchers indicate they buy little or nothing from Amazon. A fourth of you say you buy everything you can from Amazon, including your bike and tri purchases. This means that every other retailer—the online tri and bike sites, and the network of local bike shops—must fight each other over the remaining 75 percent of the market.
At best, only about half Slowtwitchers are now buying their stuff mostly from their LBS. This excepts, of course, purchases that can only be made at the LBS, such as a new bicycle. However, other than that purchase, Slowtwitchers can get just about everything else, it seems, online.
If you're an end user, it is not necessarily the case that Amazon will offer you the lowest available price. Because a retailer on Amazon must pay a significant percentage of the sale to Amazon for that affiliation, that discount is not available to the end user. Stores that are not Amazon affiliated save that fee, and can therefore offer to tri clubs, or Slowtwitch readers, carve-outs that might otherwise have gone straight to Amazon.
For this reason, stores like Trisports.com are not Amazon affiliates, and enjoy that extra profit margin, which is often returned back to the end user in the form of discount codes and occasional closeouts.
Brick and mortar bike and running stores are the brand builders for manufacturers. Almost everyone agrees with this, including every manufacturer with whom I spoke. No one yet knows the impact Amazon will have on the long term health of this network, nor on the second network that's grown up over the past decade: the specialty online seller. Not only small online retailers, but medium-sized operations like Trisports.com and large etailers like Backcountry.com (which owns Competitive Cyclist) feel the Amazon pinch. These etailers have knowledgeable sales staff and are able to answer a lot of tech questions that Amazon's staff is not equipped to answer.
It's usually the consumer who makes the ultimate pass/fail decisions in the marketplace. The Amazon phenomenon may be different. Because there is that middle ground struck by brands that thread the needle by having its brand be "in" but not "of" Amazon, relationships with specialty accounts can be husbanded.
Brands may trend all in, and we'll see a continued flood of logos and headbadges that sell directly to Amazon. Or, they may continue to trickle in as is now the case. Or, they may decide that selling to Amazon directly is not in their best long-term interests, and some may even pull back out. They may decide that Amazon is just too big and too good at displacing its competition, with too much revenue consolidated into one account.
[Image: thanks to Brad and Eric from Freewheel Cycles in Ontario, CA. T shirts available from 1664BMX ]
