Probably nothing reflects the changes in online retailing greater than the evolution of Amazon.com Inc. The topic for Owen Van Natta, vice president of business development for Amazon, at the eTail conference Thursday was: Developing Successful Online Strategic Alliances in Multi-Channel Retailing. “If I had given a speech on our strategic alliances three years ago, it would have been an extremely short presentation,” Van Natta said. “Our viewpoint was to do everything ourselves. Now we are as partner-centric as much as we are customer-centric. Partnerships are very important to us.”
Indeed, nothing illustrates that change in thinking better than the 57 apparel partnerships that Amazon has created since last fall when it announced it would sell clothing at Amazon.com. Those partnerships were built on a foundation of partnerships with Toys R Us Inc., Target Corp. and Circuit City Stores Inc. And Amazon believes it can be as successful in apparel as it has been in those other areas. “Consumer electronics is now a $1 billion a year business to us. And we built that business simply by asking people who came to buy a book if they also would like to buy a DVD player,” Van Natta told the 500 attendees at eTail. Attendance is up by 300 over last year, organizers Worldwide Business Research report.
Van Natta said Amazon believes that if it puts the right combinations of products together, it can build apparel the same way it built consumer electronics. Those combinations, he said, are not always obvious. But with the amount of information that Amazon possesses about how its customers shop, he said Amazon is confident it can find the needed combinations.
Already Amazon is leveraging its technology and shopping processes to make apparel an easy buy by, for instance, allowing customers to place apparel into an Amazon shopping cart, then check out with all items at one time. Van Natta told eTail attendees that the majority of clothing sales through Amazon are to customers new to its apparel partners.
Amazon has spent a lot of resources to make buying at Amazon easy, Van Natta said. “We have 50 million people who have bought at Amazon, 32 million in the last 12 months,” he said. “Everything is on file at Amazon from your history, your gift addresses, your shipping address, your cards, your shopping preferences, so it’s easy when you check out.” Amazon is passing all that information and technology to its partners, if the consumer and the partner so desire, he said. “If you’re a Target customer and you want your buying profile to transfer from Amazon to Target, we can do that,” he said. Amazon wins in these cases by connecting with a good partner and the partner’s customer base and the partner wins by getting best-of-breed web technology, Van Natta said.
One area of personalization where Amazon can improve, Van Natta said, is in its Gold Box promotion, which makes limited-time deals for customers. The offers have no relationship to the customer’s purchase history and preferences, Van Natta said. “We’re not using personalization there very well but we are going to improve that personalization in a significant way,” he said. Among the plans are an effort to make it more entertaining and a more fun interactive shopping tool.
Amazon also has invested in proprietary site search technology, developing a system that learns from previous searches to improve search results for the next customer, he said. Similarly, it has created five fulfillment centers so it has greater control than it once thought it would need over order fulfillment. “When we started, we tried to outsource fulfillment but we found the only way we could get the customer service we wanted was to do it ourselves,” he said. Amazon invested $350 million in five fulfillment centers with 2.2 million square feet. It still employs drop shipping in some cases and it uses various injection points to drop into UPS facilities, he said.
“We were fortunate to be able to build this fulfillment network in the good old days, when money was free and losses were a good thing,” Van Natta said. “Now our strategic partners get the benefit of this fulfillment network as if it were their own.”
At the same time, though, Amazon benefits from strategic relationships with partners that offer their own unique fulfillment arrangements, Van Natta noted. Circuit City, for instance, offers in-store pickup in near real time. “This has been a huge value add for Amazon because the whole last mile challenge is a very crucial one to success,” he said “We wouldn’t have had this service without strategic alliances.”
Amazon also is very careful about how it deals with customer service. While the company proclaims loud and often that customer-centric service is its highest goal--and surveys, such as the one this week from ForeSee Results Inc. shows that customers do, in fact, regard Amazon more highly than any other e-retailer--the company does everything it can to automate customer service. It pioneered e-mail notifications when orders had been shipped and self-service package tracking. It also alerts customers if they are inadvertently buying something they already bought, thus creating goodwill and preventing a return. But it does much of it with the aim of keeping customers off the phone, where an interaction can cost up to $10. “A phone call can convert the last 10 online purchases from a profitable experience to an unprofitable experience,” Van Natta said.
Amazon believes it has an opportunity to continue to leverage its system with traditional retailers, because only one of the largest chains--JC Penney Co. Inc.-- is also among the largest online retailers, Van Natta noted. “The top retailers are not the top e-tailers,” he said.
Amazon will continue to forge partnerships, Van Natta said. The company receives 100 unsolicited proposals for partnerships a week. “It is very difficult to sift through these. It’s the type of thing that can keep you awake at night,” he said. In making partnerships, Amazon looks for companies that have core competencies that Amazon lacks, where the partnership can provide a service better than either partner can do it alone, where the partner has brands complementary to Amazon’s and where the partner has assets that can be deployed immediately, such as Circuit City leveraging in-store pick up.