Why Small/Medium Retailers Should be Afraid of Amazon

Editor's note: How to Compete with Amazon? In the first part of our three-part guide, we show you why Amazon is competing with you, whether you like it or not, and why you should be afraid.

Online selling is tough—that’s no secret.

However, the most common threat to small/medium-sized business isn’t just competitors.

Although you still need to compete with other businesses (like those that rank alongside you in the SERPs), eCommerce competition is heading in a new direction thanks to one retail giant: Amazon.

Compete with Amazon? Why Small/Medium Retailers Should be Afraid of Amazon Coming for Them

What started as an online bookstore in 1995 has become the largest eCommerce store on the planet—making up 43% of all online sales in the U.S..

Combine that with the fact the retail giant made over $178 billion sales in 2017 alone, and there’s no doubting that Amazon is transforming eCommerce entirely.

Amazon's sales revenue keeps growing exponentially. Via Statista.

Unfortunately, Amazon is taking over—and if you’re running a small business, you should be afraid of how many customers are ditching traditional online shopping habits to make the switch to Amazon-only purchases.

Here’s why:

Amazon is Worth More Than America’s 8 Largest Retailers Combined

Although it’s obvious to state that Amazon has tremendous eCommerce power, it’s startling to realize that one single website is worth more than America’s 8 largest retailers.

That’s right—Amazon has a bigger market share than JCPenney, Target, Macy’s and Walmart combined:

Even with the lion's share, Amazon is still hungry. Via Yahoo Finance

What does that mean?

Well, in a nutshell: Customers are changing their purchasing habits. Instead of heading to their local brick and mortar store for their products, they’re using the internet to buy.

Whether their reasoning was saved time or pure laziness, it’s something small eCommerce retailers need to keep up with if they’re looking to compete with Amazon’s power.

Amazon’s Membership Scheme is Killer

We all know the power of a strong membership scheme. Amazon is no different—and have truly mastered the power of creating a killer scheme that encourages previous visitors to stay loyal.

For the annual $119 fee, Amazon Prime’s 100+ million members can enjoy:

• Fast, free delivery
• Access to Prime original movies
• Books ahead of their release date

Prime bundles streaming content, retailer discounts and more as benefits.

Ready to hear something shocking? According to Forrester Research analyst Sucharita Mulpuru, Amazon lose $1 billion every month by offering free shipping to their Prime members.

Committing to fast, free delivery to worldwide customers isn’t something small businesses can compete with.

But, the loyalty cultivated in their Prime membership mean Amazon can afford to lose out on this extra cash—considering Amazon Prime members spend $700 more than non-members, each year.

Editor's Note: To grow membership, Amazon ran a best-in-class referral campaign for Amazon Prime, which we covered previously.

Amazon is Threatening to Kill Retailers in 10 Industries

That sounds harsh, right? What’s even harsher is the fact it’s true—Amazon is threatening to kill 10 major industries, and small businesses who’re trying to breakeven could bear the brunt of their power.

Businesses in the:

• Electronics
• Consumables
• Department store
• High-End Retail
• Food delivery
• Bookstore
• Grocery
• Healthcare
• Pharmacy
• Delivery & Logistics

...industries are most at-risk of Amazon’s global domination. Why? Well, because Amazon’s CEO, Jeff Bezos, wants his website to be an “everything store”.

And, by partnering with (or outright acquiring) other large businesses in each industry to offer even better products for their customers, you wouldn’t be alone if you’re fearing the power of Amazon’s joint ventures will impact your revenue.

Amazon Sell Everything...

Remember how Bezos’ wish was to turn Amazon into an “everything store”?

That’s a dream which is seemingly becoming true since their Departments tab has been edited to include the tagline, “Earth’s biggest selection”:

Just 4 out of the 27 total categories in Earth's Mightiest Store.

Stocking everything from men’s razors to gym equipment, Amazon’s “sell everything” approach is winning-over customers through convenience.

Think about it: If you needed to purchase a razor and a treadmill, traditional online shopping would mean you’d have to go through the entire checkout process for two separate websites to make each purchase.

However, since Amazon stock both (with free delivery for Prime members), why wouldn’t you want to take the easy option and hand over your cash to the most convenient choice?

That, my friend, is why Amazon should be feared.

…and Consumers are Heading There to Start Their Product Searches

We all know the power of marketing on a small business. One of the greatest way to bring in new customers is to use SEO; a set of tactics that can place your website higher in your ideal customers’ organic search results.

But, that might not be the case for much longer.

55% of online shoppers now go directly to Amazon before checking any other site—including search engines like Google or Bing:

Alexa, is Amazon the biggest search engine in the world yet? Via VentureBeat

That means you’ve got a smaller pool of people to target through your SEO techniques, and a tough job to position your business in front of potential customers in the early stages of the buying funnel.

You can’t target people through marketing if they’re avoiding the places you’re making your business visible, right?

They’re Rated #1 for Customer Service

A huge chunk of customers leave a company if they’re unsatisfied with the customer service they’ve received:

Better CS also leads to more sales and referrals. Via GrooveHQ

...But you already knew that, right?

Small businesses usually have an advantage over larger corporations when it comes to customer service because they naturally have fewer customers—generally resulting in fewer complaint issues.

What you might not realize is this: Despite their millions of products being shipped every year (and the potential for thousands of unhappy customers), Amazon are still rated #1 for customer service.

So, even if you’ve got tons of spare time to respond to customer dilemmas, Amazon’s customer service team do, too—and have perfected their customer service process to a T.

That’s no small feat.

Amazon Allows Small Businesses to Sell Their Products on the Site—But Charges For It39.99

As a small business, it’s likely you’ll already have tight profit margins. You want to attract customers with your affordable prices, but you don’t want to lose money, right?

That’s why many smaller retailers use Amazon’s platform to sell their own products—but it comes at a price.

$39.99 a month (plus additional selling fees), to be precise.

What does that mean? Despite this selling tactic being proven to help companies shift more of their products, their profit margins are massively reduced.

In short: You’ll have to strike a deal with the devil, and make more sales to make the same amount of profit.

Can eCommerce Retailers Compete with Amazon? Final Thoughts on Amazon’s eCommerce Takeover

Amazon is taking over the way we do eCommerce—there’s no doubting that.

The retail giant has such a tight grip over the way consumers purchase online, and that’s only set to increase as they gain even more market share.

Feel deflated? Don’t panic. Amazon’s takeover is huge, yes—but it’s not impossible to compete.

Next week. we'll post Part 2 of our How to Compete with Amazon Guide, with ways for small and medium retailers to beat the Amazon giant, and snatching-up a small portion of loyal Amazon customers, one person at a time.

ReferralCandy Guide: How to Compete with Amazon:

Part 1 - Why Small/Medium Retailers Should be Afraid of Amazon—and What's Coming for Them (you are here)

Part 2 - How to Beat Amazon: Amazon's vulnerabilities and how Small Businesses Can Beat Amazon

Part 3 - Competing with Amazon: 4 Quick Wins for Small eCommerce Brands