Amazon 2020 - The Red Cross For The New Normal? Release date: May 17th, 2020 (120 pages) PDF/Powerpoint format. Price: GBP952.00 PDF brochure Buy

Abstract

• Currently there is a broad consensus that Amazon will emerge as one of the winners of the pandemic, however we believe that the picture is actually much more mixed.
• Covid-19 has undoubtedly been positive for Amazon on a number of issues, of which the most salient could be characterised as a change in public perception, a change in shopping behaviour towards online and a vindication of Amazon’s technological innovations and their future potential.
• In the words of one consultant, Amazon is suddenly perceived as the new Red Cross by the public, as an essential service and real life saver for those in self isolation and quarantine. This better image might help the company to deflect from the recent issues such as using 3P sellers data for its private label business, poor (and perhaps unsafe) working conditions in its warehouses, the US (and EU) oversight investigations and so on. But this remains to be seen.
• What has helped Amazon is changed shopping behaviour from the stay at home society. For how long this trend will last, its strength and maturity, still needs to be seen. There could be second and third waves of the disease, local outbreaks after the easing of the initial lockdowns and restrictions - so Amazon remains an attractive value proposition for stock market investors. It is safe to assume that shoppers will be likely to go out less even when restrictions are lifted. This will mean a greater push for online shopping and especially for online grocery.
• Thirdly, a number of Amazon’s big bets in technological innovations look much better now than just a few months ago. The Amazon Go stores are almost designed for the Covid 19 shopper. The concept of no queues, no touch payments are the ideal store prototype for the Covid-19 era. Moreover, one of the big drawbacks of the Amazon Go solution, namely that every SKU was being packaged in plastic (to be machine readable) suddenly turns into a plus, as plastics are seen as more hygienic and safe than loose produce.
• The same point about the potential of Amazon’s bold tech bets in this new era also hold for drone delivery and push for robotic measures of all types, because these will be ideal for social distancing and guarantee business continuity. We also think that Alexa should benefit from the effects of the pandemic. Touch free, voice activated devices might get a huge push, as sound activation is clearly more hygienic than touch activation. Alexa has also acted as a household help during the crisis as a source of information on the Coronavirus, often in collaboration with local health authorities.
• The pandemic provides a growth impetus for some product categories (such as household cleaning products and grocery or PPE) and especially grocery is the big price Amazon has had its eyes on for decades. That said, other product categories important to Amazon have suffered greatly.
• The pandemic has also led to increased sign ups to prime (mainly for deliveries benefits, but shoppers are also using much more of prime music and video, or twitch). For Amazon, the investment in moving to 1 day deliveries and the physical infrastructure (from new warehouses and sort centres closer to cities to proprietary Amazon Logistics) associated with it really has paid off. This has meant that Amazon has been able to cope better with the sudden peak, than it would have otherwise, even though delivery times in the USA topped 4 days in some instances, showing there is more to do on this front.
• And when prime grows, Amazon grows. The company has stressed that the digital prime benefits really come into their own now (due to increased usage patterns), and the ROI in video and music content and Twitch for that matter is getting better by the minute, as people now engage much more.
• The pandemic should also be good for Amazon advertising, as much agency spend moves to digital ads and away from other media as people stay indoors. (A similar point could be made in respect to AWS, as digitalisation in general gets speeded up, driving uptake of cloud services).
• The pandemic has proved beneficial for acquisitions, such as Amazon’s Deliveroo deal, for which there were serious competition issues to address before the Coronavirus, but which has been waved through against the dire economic background. There is a wider point also, in times of crises there should be lots of distressed, but attractive target companies around in need for cash.
• Another benefit could be lower oil and fuel prices and hence lower shipping costs for Amazon and the potential to hire qualified staff, as many have or are about to find themselves unemployed.
• The shutting of physical retail shops has also meant that recruitment of many new retail partners and sellers to the Amazon marketplace have gone up. Especially smaller independent niche players from the fashion and home sector, whose shops have been closed, now go online on the marketplace platforms eBay and Amazon in an attempt to survive the shutdown. This increases Amazon’s range and makes the platform more attractive by offering unique product. Amazon also generates extra income from these sellers, especially as they are likely to go with FBA and purchase ads from Amazon.
• Lastly, Covid-19 has provided a vindication of the business model (if this really was still needed). This can be demonstrated by the example of France, where French Amazon shoppers can still buy from the company and the business is still up and running, despite the courts shutting down the warehouses, due to health and safety reasons. Marketplace sellers can use their own shipping to reach customers or use Amazon’s global fulfilment and DCs in Germany, Spain or the UK to reach French shoppers.

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