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Should Amazon be Worried About Walmart+?

Amazon’s major moves of the past year have been focused on potential acquisitions–kind of a cyclical norm for the Amazon Universe. Yet the stock decline after a potential acquisition went bad has left shareholders wondering about the best way to ride out Amazon’s next wave of growth.

In addition to Amazon’s messy recent external difficulties–fixing its own stores, its failed pre-order feature, its stock price, etc.–investors worry about the company’s increasing potential competition in big, visible verticals where it currently lacks scale or any foothold.

The first is retail, with Target, Walmart, and even Kroger all fighting for access to lower-income shoppers with aggressive price-cutting, shopping, and tech-enabled experiences.

Another is consumer goods, where Amazon is testing a variety of “me-too” products, including peanut butter, soap, coffee, and vitamins.

Lastly is shipping, where Amazon is collaborating with UPS to launch its newly-created Prime Air cargo.

So what does Amazon need to worry about?

Consider the festering wounds on Amazon’s own store, head office, and brand from years of unreliable, costly, and somewhat ineffective delivery and in-store experience.

Better data is the secret sauce for the Amazon Fire TV experience, but Amazon fails to tell its customers when a film will come out on DVD. Same goes for video games. Amazon is installing free WiFi, but the store’s layout is so cluttered and you have to proactively make a purchase for online checkout.

Better advertising opportunities exist on the web than the physical store, and Amazon still lacks expertise in understanding the local market.

And Amazon’s logistics infrastructure is the best in the business, but it can be challenging to unlock that power in an urban environment.

To these challenges, all Amazon needs to add product bundling, an easy-to-use Alexa Home experience, and a relatively high degree of automation in these channels.

To be honest, this is where we struggle the most to see how Amazon can succeed in the next three to five years. We don’t know if customers even realize that Amazon could be their retailer, but we imagine that, like this from the book “The Instability Advantage”:

“Transaction escalation is one of the most important factors that separate retail from its purely utility-like forms. Overachievers do not let transaction escalation eat up a disproportionate share of their allocation of their attention, investment, time, or resources, preferring instead to let it be met when it is emergent. Similarly, they pay attention to the things that have the greatest impact on their consumption experience, rather than simply spending time and energy chasing the perceived advantages that have been presented in a particular channel or in a particular product. Consumers have a tendency to focus on what is ‘sticky’, and what experiences are most likely to stick in their minds and hearts, rather than being focused on the very best or most broadly desirable of options.”

Amazon can correct many of its missteps by providing a good data-driven consumer experience, offering world-class online commerce, and investing in a smarter, more integrated store platform. We believe that these outcomes will allow Amazon to compete well for the next few years.

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