To Amazon or not to Amazon? Retailers weigh partnerships

Now on the long list of things that e-commerce giant Amazon is proficient in is turning competitors into allies. Last month, apparel retailer J. Crew announced that it would begin offering its budget-friendly line, J. Crew Mercantile, through Amazon Fashion. News of the partnership raised eyebrows, as the retailers had previously rejected the idea with concerns that the brand’s bestsellers would be cannibalized by Amazon’s own private label collection.

J. Crew isn’t the first to change its tides, though. The brand will join the likes of Nike, Chico’s and the Children’s place, all of which have recently and gradually begun to offer their products on Amazon. Nike began testing its direct partnership last summer by offering a limited assortment of footwear and apparel for sale on Amazon, hoping to box out third-party sellers conducting business through the website. So far, though, they’ve had some tough lessons learned: Shortly after becoming a first-party seller, Nike found that the third-parties they aimed to take the place of were able to continue conducting business through Amazon by listing identical products under a new product identification code.

Weighing pros and cons:
So, if becoming a first-party seller on Amazon isn’t enough to eliminate third-party sellers, why are more and more brands moving toward direct partnerships? For one, many have taken note of Amazon’s success in brand recognition and customer retention, and for apparel retailers, this is something that can’t be ignored. Amazon’s aggressive push into apparel this year has been quite successful, with the company quickly matching Target as the country’s second most shopped apparel retailer. Some analysts predict that Amazon will surpass Walmart as the top player in U.S. apparel by the end of 2018, thanks to soaring Amazon Prime subscriptions and top-notch shipping and return policies.

Furthermore, in partnering with the e-commerce titan directly, brands benefit from wider distribution channels and more advanced shipping networks—advantages that even traditional big-box retailers haven’t yet been able to match.

Though the incentives for joining forces with Amazon are clear, there are a number of caveats that deter retailers from taking the leap. Those that have carved out a niche consumer base or unique product messaging, for example, may be concerned that these strong suits could be diluted. The retailer surrenders a large amount of control over their brand as Amazon dictates the pricing, display and product placement. Additionally, brands must forfeit control of their product pricing to Amazon. Failure to maintain consistent pricing and product messaging could lead to diminishing brand equity for some that have fostered an aura of exclusivity.

Though some experts will point to the statistic that 70 percent of business partnerships end in failure, plenty of brands have found success in developing a relationship with Amazon. Take Tuft & Needle, for example: four years after the mattress and bedding brand began selling its wares on Amazon, the company attributes a quarter of its yearly sales ($25 million) to Amazon purchases. Of course, as in any relationship, success starts with clearly communicating expectations and aligning both goals and values. Its vital that would-be Amazon partners understand the complete scope of a deal’s implications before acting and consider whether goals and values can be aligned naturally. By keeping these factors top of mind, brands can not only make more informed decisions regarding a potential Amazon partnership, but are poised for success should they choose to do so.

Big-box retailers push back
Traditional retail giants certainly aren’t resting on their laurels while Amazon intensifies its brand partnerships. For example, Target is competing through the launch of its own private label brands. By expanding their product offering to include these budget-friendly lines, which can’t be sold through Amazon, big-box retailers like Target and Walmart give their customers a reason to walk through the door. Others are focusing on filling the whitespace and carving a niche in areas where Amazon struggles: customer experience, personalization, and partnerships with influencers, to name a few. Of course, making these experiences resonate with consumers generally requires significant investment.

The first step: Deep Introspection
Retailers, especially those with fewer resources must remain careful—but deliberate—as they adjust business strategies to address massive industry disruptors like Amazon. The impact of transformative moves like this must be considered from a long-term lens.

For instance, retailers thinking about a direct partnership with Amazon should consider whether their brand’s identity aligns with Amazon’s.  Are you an experience or a convenience retailer?  Amazon is king at knowing its customer and exactly how to reach them. Will the same strategies resonate with your customer?

Potential Amazon partners shouldn’t lose sight of the fact that a partnership with the e-commerce giant isn’t a golden ticket to success. Amazon offers its partners another potential revenue stream–not a guarantee of sales. Retailers weighing a partnership must remember that it’s up to them to understand, identify and target their customers. A partnership with Amazon can successfully supplement a retailer’s market strategy, but it shouldn’t be considered as a replacement.

It’s also important that those planning on entering a partnership with Amazon weigh how supplier and distributor liabilities could be impacted, as well as its implications for total tax liability and data collection processes. In performing these internal assessments, retailers are better able to gauge ROI and gain deeper insight into the potential long-term implications of a partnership with Amazon.  What’s sexy may or may not also be what’s best for your bottom line.

Be sure to keep up with the latest retail news by subscribing to our blog on the Consumer Business Compass homepage here, and follow us on Twitter at @BDOConsumer.

Blog-subscribe-ad_CB.JPG