Doug Garnett’s Blog


AMAZON – Retail’s 800-Pound Gorilla…or Crafty Coyote?

AMAZON – Retail’s 800-Pound Gorilla…or Crafty Coyote?

An odd digital disease has run rampant among mass retailers for the last couple of decades – let’s call it “Amazon Panic”. (Professor Mark Ritson calls advertising’s version of this digital disease “morbus digitalis”.)

Amazon Panic involves falling prey to digital theories because we’re told “physical things like stores will go away and be replaced by digital”. These theories are given extra momentum because of popular mythology around disruption. And for retail, Amazon becomes the panic point because they are the biggest mostly pureplay digital retailer. (Most other pureplay eCommerce has already failed due to bad economics or morphed into something else.) is such a powerful distraction that a Time Magazine article recently called it the “800 pound gorilla”.

A Challenging Data Point. Last year, we mounted an advertising campaign for a product that drove consumers to Amazon as well as a traditional retailer. These were tagged commercials that directed consumers to either website. Surprisingly, given the media weight and the tags, sales at the retailer website were roughly 8x the sales on Amazon. In the stores far, far more were sold than on either.

So that started my team at Atomic studying the numbers – looking back at 20 years of Amazon Panic. What we find is both fascinating and quite clear:  Amazon Panic is out of proportion.

Amazon’s True Size:  We’re told that Amazon is a $107b retailer. They’re not. Amazon pushes that idea (and even such respected firms as Forrester have been sucked into it).

Yet only a portion of Amazon’s revenue can be considered revenue they “took away” from retailers. So we need a new term to get to Amazon’s true retail size:  Retail Equivalent Revenue.

Let’s breakdown Amazon’s total revenue to get at their Retail Equivalent Revenue.

  • Selling digital content (for Kindles and other devices):  $22.47b
  • Cloud services (AVS):  $8.0b
  • Fire and other devices: $9.0b – $20.0b (estimated)
  • Miscellaneous other:  $5.0b (estimated)
  • Retail Equivalent Revenue:  $50.0b – $65.0b (estimated)

Amazon is, then, a $50.0b to $65.0b worldwide retailer.

How Does This Fit the Bigger Retail Market? Of course, Amazon’s revenue is still a big chunk of change. But it’s critical to ignore the emotional impression numbers make. How does Amazon fit into the retail world?

Here are some worldwide numbers for perspective (from the most recently reported fiscal year):

  • $486 billion:  Walmart revenue.
  • $234 billion:  Apple Computer Revenue.
  • $170 billion:  Combined revenue of Sam’s Club and Costco.
  • $103 billion:  Walgreens revenue.
  • $88 billion:  Home Depot revenue.
  • $50-$65 billion:  Estimated Amazon Retail Equivalent Revenue.
  • $53 billion:  Apple Computer profit.

And here are some domestic US numbers from 2014/15 for more perspective:

  • More than $4 Trillion:  US retail market (excluding automotive) per US Census Bureau.
  • $360 billion:  Reported US market digital revenues (per US Census Bureau).
  • $25-$35 billion:  Estimated Amazon US Retail Equivalent Revenue.

But Didn’t Amazon Just Become Profitable? Each of the retailers I noted above is profitable on those revenues. And they have been for years. Only recently has Amazon started to post profits. But these profits aren’t coming from their retail business.

  • Amazon buys retail revenue and “customer loyalty” at a loss today. They do this by expanding selection, attempting to increase convenience (like their buttons), or pursuing what is fundamentally a discount strategy. Even Amazon Prime is -so far- a money losing attempt to buy loyalty.
  • Amazon is a category killer in books and music but can’t even leverage their natural advantage in book and music sales to make much of a difference.
  • Amazon’s rare profit comes from non-retail services. In Q2 of FY 2016, cloud services, for example, which are less than 10% of their business revenue accounted for 67% of Amazon’s profit.

Amazon is Publicly Searching for a Better Model. Think about recent news from Amazon and you’ll detect a search for profits (I might call it a desperate search – but that could be taking it too far).

  • Amazon is going brick & mortar. Amazon has one apparently successful book store and is opening others. One will be at Washington Square – my local mall in Tigard, Oregon. It will be interesting to see what they learn. But their choice to move offline matches what’s happening in other digital efforts. Pure online digital plays like VistaPrint are beginning to use off-line advertising to build their businesses. Why? Because they’ve tapped out what they can do digitally.
  • Amazon Prime. My guess is the massive sign ups of Prime are being pitched to investors as “buying customers” that will monetize…some day. Personally, I doubt if they will ever monetize because of the fundamental economics of eCommerce costs.
  • Amazon Product Order Buttons. I can’t really sort these out. Some articles place these as entire money losers for Amazon. In many ways, I think they’re a PR ploy. And to keep themselves in the headlines, Amazon announced more buttons recently.

So What’s the Final Answer? Coyote or Gorilla? In reality, this isn’t even a competition. Walmart is retail’s Gorilla. Amazon’s a crafty coyote.

  • Amazon does not dominate retail – except to the extent retailers choose to lose their way and focus too much on Amazon. Amazon has built solid revenues but has done so without a profitable business model.  They have been selling the promise of the future to their investors and the industry for two decades. But, I believe the future is finally upon them – the future is now – so the heat is on to generate profit, (we’re seeing it in tactics like eliminating list prices which seem targeted to increase margins).
  • Entrenching their coyote role, Amazon scavenges some of their revenue using an online loophole – not charging state sales tax in order to keep their prices to consumers lower. This loophole won’t exist forever. In fact, states like Colorado have already begun closing it.
  • Like most scavengers, Amazon is chasing a corner of the market and feeds quite well from it. But data is clear that digital sales are stuck below 10% of retail. Even Forrester, digital’s biggest cheerleader, can’t envision US online retail exceeding $500b total for 5 more years.
  • Like a Coyote, Amazon has a positive role to play in the retail eco-system. In fact, one positive Amazon role is as a combination “shopping search engine” and “shopper Yelp!”. Many people look up products and reviews on Amazon then go buy in a store. Far fewer will walk away from a product that’s in front of them at retail in order to save 5% purchasing it at Amazon – even with free Prime delivery.

The Key to Mass Retail Strategy:  Don’t Focus on Amazon.

Truth is that I like the Amazon coyote and buy plenty through Amazon (my wife is an Amazon Prime customer). But they don’t replace retail nor do they diminish what I buy at retail by very much. My sense is they co-exist quite well right alongside retail. And manufacturers need their product carried both at retail and on Amazon.

Amazon wants more than that – and, like a coyote, Amazon’s disrupting howls are more distracting than is warranted by the numbers. Watching Amazon sort out their way forward is interesting to watch. But Amazon doesn’t have a strong, profitable retail model. So retailers need to stop chasing Amazon (let Amazon be Amazon) and get their focus back to making their stores places consumers want to shop.

The distraction Amazon has provided has been damaging. Many retailers wasted years of strategic advancement by chasing Amazon. During that time they let languish the place where they can make the most money – stores. I think this problem ignoring stores may be the reason behind a recent retail traffic decline.

Here’s what I recommend (in broad terms):

  • Consumers go to stores to shop. And they go to stores to buy products. The retailer’s job is to make their stores more effective at this.
  • That means stores need to deliver an interesting mix of products, well displayed, well advertised, and with some deals to be discovered as a reward for the hunt.
  • It also means that retailers need to attract consumers with innovative products along with the staples needed to draw regular visitors.
  • Even better, when retailers build good store experiences, digital sales will follow naturally.
  • And retailers should consider digital and online tech to be like an iceberg. Most of retail tech’s value doesn’t come where consumers see it in showy applications. It’s most useful behind the scenes –  in areas like supply chain management, logistics, communication with store personnel, managing the store, etc…

And there’s tremendous news. Those retailers who stay focused and avoid distractions to build stronger stores also create the strongest long term strategic advantages.

UPDATE with AMAZON Q2 2016 RESULTS. Amazon recently released it’s Q2 results. As is typical of Amazon press releases, they touted amazing results without clear attribution of the details. The resulting headlines mostly wove a story that profit came from their electronic retail business. But the actual results don’t show that.

Half of their profit once again came from that 10% of revenues that are cloud services. The other half of their profit was lumped from a total category that includes retail but more importantly content sales and device sales. It is reasonable to assume content delivered most (or all) of that profit.

These latest results confirm again that Amazon has yet to create a profitable retail model.

Copyright 2016 – Doug Garnett – All Rights Reserved

Categories:   Business and Strategy, Retail, Uncategorized


  • Posted: July 13, 2016 22:32

    Larry DeLeon

    Great analysis Doug. We should keep this in mind when advising clients on a winning retail strategy. Thanks for putting this together.
    • Posted: July 14, 2016 18:05

      Doug Garnett

      Thanks, Larry. When I started walking through the numbers it seemed a post that needed to be written. Great to hear from you.
  • Posted: July 14, 2016 05:27

    Robin Behar

    Doug - thanks for this article. When you see the numbers its an eye opener. Appreciate the information and point of view.
  • Posted: July 14, 2016 18:07

    Doug Garnett

    They're quite surprising in different ways. What I didn't dig into, either, is taking apart their retail... Some out-sized portion is from books & music. Another batch is for products that don't have enough demand to ever be put into retail - essentiallywhere Amazon has taken revenue from catalog and specialty direct distributors. (A lot easier to order from Amazon.) I think that would be an interesting study - but Amazon is so careful with their numbers that the data is really hard to find. :-) Cheers. Hope alls well!
  • Posted: July 14, 2016 20:03

    Guy AlLee

    Great perspective. In one respect, this seems like a one-way analysis making the point that Amazon is not all retail. To do a true comparison, wouldn't you have to subtract the e-commerce part of each of the retailers, as well? e.g., how much of Walmart's revenue and profit are from brick-and-mortar vs. online? Apple? And then there's the issue of where would you put hybrid things that cross on-line / store boundaries: Home Depot "ship to home/ ship to store" and Walgreen's "mail order"? Maybe those distinctions aren't significant, but one wonders. Just curiosity, but what was the product the did better in retail than online? I 'd guess it was a product that represented some unacceptable consumer risk to buy without being able to put hands on it physically at time of purchase, whether that was price level, perceived quality/reliability, or availability. Finally, this analysis glosses over the loss of, especially, small and specialty retail. 20 years ago, I could go any number of places to buy electronic components. And have them today. Nowadays those outlets are gone. Radio Shack, if you can find one is mostly batteries and cell phones now. Conversely, I have a much wider selection of things from which to choose, and, for example, can get furnace parts online for half the cost of getting them from the local furnace guy, and in days, not weeks. Amazon has collapsed what constitutes a viable supply chain because too many levels of transaction costs and profit taking just can't compete.
    • Posted: July 14, 2016 20:54

      Doug Garnett

      Guy - Appreciate the comment. And I agree that for a thorough comparison we would do all that. These numbers are offered as a starting point. (This is what we called a "SWAG" starting point when I worked in Aerospace...a somewhat wild assed guess.) That said, Walmart's digital revenue is roughly $13B. Their Q4 US revenue was $70B - more than Amazon's worldwide retail like revenue for a whole year. And the numbers continue. Wanted to correct a mis-perception: That product I mentioned? I was talking all digital... It sold 8 units on the retailer's WEBSITE for each sold at Amazon. THEN, it sold another 10 in the store for each one sold on the website. On your last point I don't disagree. In a lot of ways, Amazon is a far more convenient catalog/specialty source. Makes me wonder how much of their revenue reflects that type of retail? I notice things I buy on Amazon are often things that are hard to find if I went out to search furnace parts.
  • Posted: July 16, 2016 18:57

    Eric Meyer

    Hi Doug, Good stuff. From a manufacturer perspective, when you run DRTV for products that are also at retail and Amazon, how are you finding sales breaking down between the URL in the commercial vs. Amazon vs. retail? Thanks! Eric
    • Posted: July 17, 2016 00:02

      Doug Garnett

      Thanks, Eric. I don't have huge amounts of data. At a retailer, we generally find sales are in line with the averages - 7% coming through their website and 93% from stores. That example I noted found Amazon at just under 1%, retailer website at 7% and physical stores around 90%. From what I hear, this isn't unusual. I know of a pure online play where 75% is through their website and 25% is through Amazon. Would love to fill in more data. There have to be areas where Amazon is stronger and others where it's weaker.
  • Posted: July 20, 2016 22:43

    Wendi Cooper

    I had to read this article when it popped up. Something I rarely stop to do during my work day. I have to chime in here. There is so much missing from this "analysis" it's almost embarrassing. Doug, are you a Seller on Amazon? Do you have any clients that are? Do you have any idea what has happened product centric website sales vs.listing on Amazon? I have been in direct response since 1994. I have been there and done that and then some. Here is what is missing from a Professional Seller's POV that has grossed over $1M with 1 product in 4 color variations on Amazon in the past 18 months with little media/ad spend at all. In fact we spend 0 on SEM & SEO. ZERO! Why would we when Amazon bids 1st position for us? Or when they bid for 1st position for our main competition and when the consumer clicks on Amazon's Google listing for our competition our product shows up on the same page. Sure we pay fees to be a Seller, but isn't it nice I don't have to have a SEM team taking care of that? Amazon's algorithm is invaluable to a Brand - "people who purchased this all searched for this..." - As a Brand we could never afford that technology, ever. Amazon reaches out to customers for their feedback and allows reviews to shine on listings - good or bad. Revenue generators for Amazon and Features for Brands. Sponsored key terms that Seller manages and controls the bids, but Amazon allows it's Brands/Sellers to bid on search terms within Amazon. Amazon Ad Space (revenue generator). Amazon Lending for its Seller to support their growth. Amazon A-Z Claims Amazon's One Touch ordering which they can extend to 3 parties website along with their FBA Fulfillment Services. Easy to integrate Drop Ship - just try to onboard for drop ship with Walmart or Homedepot. Biweekly Disbursements. (the interest they are making from holding on to the disbursement). I have no desire at all to be in a Bricks and Mortar store - why would I do that? We are also on the following as the "BRAND" of record - - our sales are 1/100th on these retailer's sites as they are on Amazon. True story. And the difficulty on boarding with them - well - Yikes. Amazon isn't a specialty store - Home Depot is. Amazon is't a crap cheap store - Walmart is. Amazon is a convenience where products are about best deal - but consumers that will pay more because they trust their shopping experience to Amazon's promise. With PRIME it's delivery and Locker Pick Up or next day/Same Day delivery - to one click shopping - consumers will pay extra for that convenience...just ask any guy that owns a 7-11 - people pay more for convenience. As a professional Seller of a brand on Amazon there is no comparison to what they offer us to what the others offer. We consider Amazon our most valuable partner. It's in true Amazon style to listen to their customers and give them what they want - and if it's bricks and mortar, and "lockers" or next day delivery - then that's what they will do - and they will lose money - because in the long run they are the 10,000 pound Gorilla an they know it. Just last December I watched a product that had had a DR TV Spot, a beautiful website, great pricing, and awesome product go from near zero sales for 3 years online on their product centric website to $69,000 in 3 months after listing on Amazon. No SEM - No Media. Perhaps some boosted posts on Facebook - but that's it. That's remarkable - and it tells a story. In fact is launching a "market place" that is modeled after Amazon's in order to open it's online store to 3rd party sellers - such as,,,, etc.. A place where anyone can list on Walmart (with approval) but one does not have to be a Vendor, just a Seller, which is Amazon's current model. If Walmart didn't think Amazon as a "Gorilla" then why build 2 city blocks of warehouse space in Chino, CA and launch a 3rd party market place model? HMMMM. We do not sell our product direct to consumer via our website, we have icons click through to Home Depot, Walmart, Amazon detail pages - we don't compete with the hand that feeds us. All three retailers bid against one and other in Google/search - for our product listing - we are happy with the FREE Organic ranking. Perhaps I don't understand this article. But in my opinion as a Marketer, a CPG Owner, and Direct response product consultant, Amazon is NOT a coyote it's a very big 10,000 lb Gorilla - and growing.
    • Posted: July 20, 2016 23:29

      Doug Garnett

      Wendi - Glad my post drew you in. Think you mis-understand the point from where I approached this. Nearly all of my agency's work is designed to drive retail. But talk with retailers and you'll hear a panic about Amazon and their business. The post is written to look at the issue in the way that a retailer needs to think strategically. And what I see is that Amazon is just fine, but retailers who choose (like Walmart) to copy Amazon are getting sucked into Amazon's game - a serious strategic error. That said, I like Amazon, buy a lot on Amazon, and all of our clients are active on Amazon (one is even a former Amazon executive). Clearly you reap some really sweet rewards on Amazon (and I appreciate the detail you give). But you also suggest there's no reason to expand to retail. Maybe not for you. What happens at retail, though, is an order of magnitude larger than anything you describe. Think about the example I noted: we sold 80 units in retail stores for every 1 unit sold on Amazon. That's the retail opportunity. It's not for everyone and comes with some severe headaches. But it's far larger. A.J. Khubani (to stick with seen on tv examples) regularly talks about how 90% of their profits are from retail. You noted someone who had shifted to Amazon and their sales went to $69,000 in three months. For perspective, our TV campaigns that drive sales through retail & direct quite often drive 1 million units in their first 2 months on-air. We once drove $100M in retail revenue in a two month period with our advertising driving to retail. Appreciate your passion and adding so much to the conversation. Hope this helps to clarify the purpose of the post and why retail remains so critical to manufacturers. Cheers... ...Doug
  • Posted: August 8, 2016 15:22

    Steve White

    Interesting article. Puts a new slant on Amazon for me. Good exchange of thoughts. Thanks Doug, and Wendi.
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