June 16, 2011, 11:19 AM

IRCE 2011 Report: How does Amazon do it?

Selection, customer experience, lower prices and a gatekeeper role are the answers.

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Amazon.com Inc. is the largest e-retailer for several reasons, and retailers can learn from them and even participate inside the electronic walls of the retail giant. That was the message in a session entitled “How Does Amazon Do It? An In-depth Look at E-retailing’s Pacesetter” at the 2011 Internet Retailer Conference & Exhibition.

Amazon.com offers a massive selection of products, provides an exceptional customer experience and offers low prices—and through years of building a reputation, its site search box serves as a gatekeeper to e-commerce, said co-presenter Colin Sebastian, an analyst at investment bank RW Baird.

“Amazon has 130 million active buyers, and growth has accelerated in recent years,” Sebastian said. “Part of that growth comes from its third-party marketplace, where we’ve seen a broadening selection of products and categories. Amazon next year will generate more than $12 billion in sales in the marketplace. And Amazon has been breaking out beyond its strength of books and media and growing into areas like electronics and apparel. Compare Amazon.com top-line growth to the anemic growth in bricks-and-mortar and the healthy growth in e-commerce, and Amazon is ahead of that.”

The question for Wall Street, Sebastian added, is how much growth potential is there for Amazon.com in the future. He said it could continue to grow at a significantly high level for the next 20 years. And that’s thanks in part to Amazon’s focus on technology, which powers the customer experience and is a step ahead of the market.

“It has always been a technology company, that’s in the DNA that created the company,” he said. “Its technology that differentiates Amazon, and its significant investment in technology has created a moat against its competitors.”

Co-presenter Scot Wingo, CEO of ChannelAdvisor, which helps e-retailers manage search and work with comparison shopping engines and online marketplaces, says Amazon.com sales grew 40% last year, and sales excluding books and media grew 80%.

“Amazon is investing dramatically in fulfillment centers; they have 50 and will add 25 this year,” Wingo said. “Increasing capacity like that in one year will fuel amazing growth.”

Wingo says other retailers can take various approaches to dealing with Amazon. One is Sell On Amazon, where a merchant places its goods for sale on Amazon.com and Amazon takes a cut of the sale. Another is Amazon Product Ads, where a retailer’s product image and description can pop up on a product details page with a button that links the Amazon shopper to the retailer’s site. Amazon takes a cost per click for Product Ads. Wingo says too few retailers take advantage of Product Ads and that they can perform better than listings on comparison shopping engines. And another approach is simply to source and sell products Amazon does not carry.

 

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