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Movement from online to offline store

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Table of Contents

1. Problem statement---------------------------------------------------------------------------------3
2. About Company-------------------------------------------------------------------------------------3
3. Stakeholders Involved-----------------------------------------------------------------------------4
4. Barriers to entry-------------------------------------------------------------------------------------5
5. Competitors------------------------------------------------------------------------------------------6
6. Impact-------------------------------------------------------------------------------------------------8
6.1 Social
6.2 Economic
6.3 Technological
7. Evaluation of options----------------------------------------------------------------------------10
8. Recommendation---------------------------------------------------------------------------------10
9. Appendices-----------------------------------------------------------------------------------------11
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1.Problem statement

The purpose of this report is to understand Amazon’s decision to launch

Amazon Go and Amazon Elements and by extension, its intention to move
from being online to a mixed online and offline retail and manufacturing
company.

It also explores whether Amazon has the capability to do so and how it can
leverage its existing infrastructure and network to achieve its objective in
the best possible way to gain profits in the long term.

2.About Company

Amazon.com, Inc. (Amazon), one of the largest global online retailers,

decided to enter the offline retail in December 2016 by launching its first
Amazon Go store in Seattle, offering a technologically innovative way of
shopping that allowed customers to make purchases without a cashier. The
launch was the first time that Amazon really entered the traditional retail
industry. Earlier, in May 2016, the company had entered food, diaper, and
housekeeping product manufacturing with its Amazon Elements brand.
Nevertheless, these products were only available online for American Prime
Members.
Foundation -
Founded in 1994 as an online bookstore, the company had become an e-
commerce giant, leading digital sales of books and electronic products. It
revolutionized the way consumers purchased products, while also becoming
a trusted source of product information for potential buyers. However, the
company was not profitable until 2001, while it was still experiencing some
financial difficulties. As of the third quarter of 2016, it was the fourth most
valuable public company in the United States. In 2015, it surpassed Wal-
Mart Stores, Inc. (Walmart) as the most valuable online retail company in
the United States.
On July 5, 1994, Jeff Bezos, a 30-year-old engineer a 30-year-old engineer
graduating from Princeton University, left his job as vice-president D.E.
Shaw & Co., a global investment firm based in New York, to create an online
bookstore based in Seattle.
The company was named Amazon.com in the year after it was created. It
expanded in other countries gradually.
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The company now

Headquartered in Seattle, Amazon was one of the big four global digital
companies: Google, Apple Inc. Facebook Inc., and Amazon. It had worldwide
operations, with websites serving markets in 14 countries in North America,
Europe, and Asia, and shipping services in 75 countries. Its business was
expanding rapidly. The number of full-time and part-time Amazon
employees increased 47 percent in one year to reach 268,900 in 2016.

3.Stakeholders Involved

The three major stakeholders of Amazon are explained below:

1. Employees: Amazon currently has over 6,13,300 employees across

50+ countries. By introducing the offline stores in different ways, the
headcount is expected to grow by 100,000 more employees.

2. Shareholders and Owners: Amazon, being publicly listed, is

answerable to its shareholders for profits. The number-one
shareholder in the company is Amazon's chief executive officer (CEO)
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and founder, Jeff Bezos. Bezos was born in 1964 in Albuquerque, New
Mexico and studied computer science and electrical engineering at
Princeton University. Upon graduating, Bezos went to work for the Wall
Street firm D.E. Shaw, becoming the youngest senior vice president in
its history. He left the company and started Amazon in 1994, initially
setting up the company in his garage in Seattle. After Bezos and a few
employees wrote the software for Amazon, the company began to
make $20,000 per week, selling products in 45 different countries.
According to Bezos' most recent filing with the SEC on August 14,
2018, the Amazon CEO owns 78.88 million shares of the company. In
September 2000, Bezos founded an aerospace manufacturer and
spaceflight company called Blue Origin. In 2013, Bezos paid $250
million for the Washington Post. On July 27, 2017, Jeff Bezos
surpassed Bill Gates as the world's richest man with a net worth of
over $124 billion. As of October 2018, he is worth $146.9 billion
according to Forbes.

3. Customers and Sellers: As of the last reported period, Amazon had

310 million active customers. Amazon Prime has over 100 million
subscribers worldwide. By 2022 there will be 56 million Amazon Prime
Video subscribers alone in the U.S., and 122 million worldwide. Within
four years it's projected that Amazon Prime Video will grow its
customer base globally to 122 million subscribers, with 45.9% from
the U.S. alone. Amazon's Source: Statista.
Around 50% of all sales on Amazon marketplaces come from third-
party sellers. Amazon currently has 12 marketplaces: USA, UK,
Germany, France, Canada, Japan, India, Italy, Spain, Mexico, Brazil,
and China. Amazon Australia and Singapore are launching soon.
Amazon marketplace sellers, product sales totaled $118.57 billion, up
25.2% from $94.67 billion in 2016. There are over 5 million
marketplace sellers across all Amazon marketplaces.

4.Barriers to entry

The expected reaction of industry incumbents towards a new entrant

influences the prospect or threat of entry by a new competitor. A few
sources of barriers to entry into the retail market are:
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1. Competition from existing stores: Huge competition and retaliation

from well-established retail stores like Walmart, Macy’s.
2. High investment cost: Building out new retail stores with high-end
innovative technology need investment, it increases the cost structure
and hence decreases profits in the short run.
3. High R&D cost: Creating a self-checkout, RFID enabled cashier less
store involves high Research and Development costs.
4. Difficulty in the procurement of land: Procuring or leasing land to
construct big outlets at premium locations is difficult.
5. Retail Distribution Network: Amazon has to compete with its biggest
retail competitor Walmart in the distribution network to provide.
6. Government regulation: Some government policies don’t align
accordingly with companies interests like minimum labour requirement,
property acquisitions rules.

Even though Amazon has a lot of potential reserves to cross most of these
barriers, in the long run, it has to acquire and make loyal customers to their
retail stores to survive in the traditional market. Retail stores like Walmart
offers the product at the lowest cost with high customer service. Hence,
Amazon should disrupt Walmart customers by offering competitive prices
with high-end experience.

5.Competitors

Amazon has started its journey from moving from an online store to on
offline store. The problems that the company is posing on the existing
supermarkets and local markets are the availability and flexibility of
returning the product on a click of a button. The price at which the online
store offers the products is much lesser than the product that is sold at MRP
in the local market. The only reason for the survival of the other markets is
due to the fact that its quick and you can choose the product you want just
by seeing in a present in front of you. Hence to the local market and the
supermarket people have quick access. The only trade-off is the time.
Now id Amazon comes up with offline markets too along with its online
counterpart the existing markets might lose their share of profits that were
made. As Amazon is already a known brand and marketing the new
upcoming offline market like Amazon go will not be a bigger problem at all.
So in time, the company will take off the share of the market which initially
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belonged to the rest of the markets. Coming to the list of companies that are
a threat for the Amazon in offline market are the market giants like Big
Bazaar, Central, D-Mart, Easyday, Foodworld, HyperCity, Lulu Hypermarket,
Margin Free Market, Maveli Stores, More, Namdhari's Fresh, Nilgiri's,
Reliance Fresh, Spar, Spencer's Retail, Triveni Supermarkets, Walmart.
People have a good perception about some of the most famous brands like
Big Bazaar, D-Mart, Reliance fresh and Walmart. These companies have
been registered in the mid of the people to give products at cheaper rates
and one of the biggest competitors is Walmart as they have acquired
Flipkart. And there is a high possibility that they might come offline too
which not only focuses on urban areas but also on the rural market heavily.
Due to high price difference in the products sold in the market people might
stick to they reliable stores which gives quality products at cheaper rates.
Coming down to opening Amazon offline stores in tier one cities where the
demand is high like Mumbai, Bangalore, Delhi, Chennai, Kolkata, and
Hyderabad might or might not be feasible as the local market people have
already brought in the option of home delivery and online shopping which
will be done in an hour or maximum by a day it might not bring in the return
on investment that is expected. As people in the tier one cities are busy at
their work and barely get time to rejuvenate walking into an offline store to
buy products is not feasible and people prefer to order online and hence it
depends on the mood and mindset of the people.
With the new advanced technological breakthrough amazon has come up
with walk in a strategy of shopping which is much easier and convenient for
a person who prefers to go out and shop on a daily basis or weekends.
Where you don’t need to stand in the long queue to get the billing done, you
can just walk into the store grab what you want and walk away. This will be
the new breakthrough which no company has even though of. But there is a
huge investment needed as compared to the classic markets. When the
question comes to the price of the products the competition arises. Amazon
goes being very sophisticated and looks more like a premier shopping
center, price of the products and not be as cheap as the products available
outside. India, on the other hand, is a country where the majority of the
people are price sensitive. Due to this fact, the already established
supermarkets have an upper hand. In time Amazon can pick up the pace
and start competing with the price of the products but at the beginning, it
might take some time as all business to get established.
The Company already has multiple ways to cater to the needs of the
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customers via online medium. But the company does not want to leave that
opportunity to cater the need of the offline market too. If it does not make
the first move, other companies like Walmart who is the biggest competitor
will take over the market that is available. Change and coming up with an
innovative way to serve customers is the only way to survive in the
competitive world and Amazon’s step towards offline along with its online
counterpart is a good strategy to acquire the market and also sustain in the
market.
6.Impact

6.1 Social
We witness a new trend where purchase behavior of people is moving from
offline to online. The new model of Amazon seemed to move against it It will
change the retail experience and our relationship to the stores and where we
shop. It's one of the effects will be to accelerate our desire to shop on our
terms. Amazon Go also changes the relationships between business and
employee, governments and citizens service which is aimed to be launched
for the prime customers only created a gap and making it a luxury. Amazon
is customer-centric and this new idea adds to its motto but few things need
to be considered before we conclude how beneficial the idea is.

Knowledge Gap and the ability of people to navigate technology. As we all

know any person with more than four items at a self-checkout area will have
to be guided and helped. At Amazon Go, we will witness similar issues --
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even though the approach where you simply walk out with goods may
eliminate some friction.

Privacy. Amazon Go is has a surveillance system which is necessary to

prevent theft, verify purchases and ultimately figure out who you are. When
we talk about these big companies stealing our data. This model exposes a
lot of information about our purchase behavior.

Jobs. Amazon Go removes the concept of cashiers and if the rest of retail
follows (likely to some degree) many jobs will be lost. Amazon Go will be
one more anecdote to the ongoing discussion around how automation,
technology, and artificial intelligence are killing jobs over time. The
technological job is likely to increase but that will not be for the people
losing jobs.

6.2 Economic

With all the companies coming in and investing in the Indian market there
will be a huge effect on the economy of the country. Due to the enormous
competition involved the company will keep investing more and more money
to stay in the competition. This, in turn, increases the intake of more
employees. Hence unemployment reduces at a longer run. As not only an
MBA graduate or a computer software engineer will be hired but also normal
labours will be in need to get the company running.
If the company comes up with the option for the producers to tie up directly
with the company to sell their products. The producers can manufacture
more products and sell it directly to the company without any involvement of
the third party. This increases the economic state of the producers and
hence the social economy increases. Due to the fact that Amazon go is an
almost automated worker for check out may not be required, but definitely,
other labor force is required and it provides space for engineers to come up
with innovative ideas to make the shopping experience simpler. To make
this feasible there will be a requirement for managers and to get this
ongoing in the real world there is a need for a huge labour force. Eliminating
the middleman, investing heavily on the Indian market and by creating job
opportunities the company will definitely increase the economic state of the
country
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6.3 Technological

The future way of shopping-Amazon removed cash registers along with

shopping carts and baskets. Customers use an app to get into the store and
then simply peruse the store, pick their products, and leave. No scanners, no
cash attendant, nothing. The moment you leave, your bill is available on
your phone and you can confirm your purchases if necessary.

New technological terms into actions

The Amazon Go store uses a combination of computer vision, deep learning
algorithms, and sensor fusion, which are some of the same technologies
used in self-driving vehicles. Automation can trigger further improvements in
other retail businesses as well

7.Evaluation of options
The project carried out in Seattle is proof of the extent to which technology is
a threat to some professions and privacy. We need to understand the project
adds to the brand of Amazon but once the person behind the register is gone,
the financial savings for employers will be huge and so will be job losses.
From the technological point of view the idea is not difficult to implement and
when we are talking about the technological savvy Jeff Bezoz and his desire to
expand, a single Amazon Go looks like an easy task.
Amazon Go.
The Amazon Go concept represents a broad threat to the retail model as we
know it because it could combine the convenience of a 7-11 store with the
breadth of a Walmart. The value addition through the store will strengthen
its online business as well. It will give it more visibility and the touch and
feel element which made people reluctant to buy is solved. The prime
members who are the loyal customer base of Amazon will serve as the
potential candidate for the new idea.

It defines 'disruption,' because it blends online with on-premises retail to

possibly provide the best of both worlds. As VR and mixed reality tech
advances, its breadth of products could range from groceries to cars and
even homes.
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8.Recommendation

The retail market is exceptionally competitive and not having expertise in

the conventional offline market, Amazon would be prone to high risks since
Amazon's supply chain management for online retail would be different from
the conventional offline retail distribution channel. The elimination of cashier
jobs will put a vast portion of individuals out of employment.

Of course, Amazon Go may create work as well, like value-add services,

administrations tasks including things like taking care of customer service or
handling returns, yet that is not really liable to compensate for other
employment misfortunes. It will likewise require individuals engaged with
stock ordering and logistics, however again it is relatively low. Amazon as of
now is very much progressed in utilizing robotic technology to do these
things, may even further cuts jobs.

In the end, the Amazon retail store has its perks but also its complications.
Quick and cashier-less stores are engaging and convenient, but it is at the
cost of the jobs of people. After subsequent analysis all potential choices to
handle Amazon’s concern, it is better for Amazon to not open more Amazon
Go stores and rather continue manufacturing Amazon marked staple foods
and open that market for non-prime purchasers as well, so they become
more aware of Amazon-branded food and grocery products. Likewise,
instead of opening a brick and mortar types of a retail store to get into the
grocery market, Amazon should just do that through its online retail channel
without incurring high investment. Also, as Amazon has to compete with
biggest rivals in the retail market, a slab-wise expansion into the retail
market is recommended that a massive development.

9.Appendices

1. Data file with the graph showing trend market share of online and
offline shoppers
2. Analysis of new job staff needed and redundant positions
3. Reports having competitor analysis