Amazon.com, Inc. SWOT analysis 2019
Table of Contents
Company overview
3
SWOT table
5
Strengths
6
Weaknesses
13
Opportunities
17
Threats
21
Summary
25
Sources
27
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Company overview
Name
Amazon.com, Inc.
Founded
July 5, 1994
Internet (Amazon Web Services, Amazon Video)
Industries served
Retail (Amazon Marketplace, Amazon Prime, Whole Foods)
Consumer Electronics (Amazon Kindle, Fire HD, Fire TV,
Amazon Echo)
Geographic areas served
Worldwide (Amazon Marketplace in 14 countries)
Headquarters
Seattle, Washington, U.S.
Current CEO
Jeffrey P. Bezos
Revenue (US$)
177.866 billion (2017)
30.8%
135.987 billion (2016)
Profit (US$)
3.033 billion (2017)
30.9%
2.317 billion (2016)
Employees
566,000 (2018)
Alibaba Group, Apple Inc., eBay, Inc., Facebook Inc., Alphabet
Main competitors
(Google Inc.) Inc., International Business Machines
Corporation, Microsoft Corporation, Netflix Inc., Wal-Mart
Stores, Inc. and many other Internet and retail companies.
Business description
Amazon.com business overview from the company’s financial report:
“Amazon.com opened its virtual doors on the World Wide Web in July 1995. We seek to
be Earth’s most customer-centric company. We are guided by four principles: customer
obsession rather than competitor focus, passion for invention, commitment to operational
excellence, and long-term thinking. In each of our segments, we serve our primary
customer sets, consisting of consumers, sellers, developers, enterprises, and content
creators.
We serve consumers through our retail websites and physical stores and focus on
selection, price, and convenience. We design our websites to enable hundreds of millions
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of unique products to be sold by us and by third parties across dozens of product
categories. Customers access our offerings through our websites, mobile apps, Alexa, and
physically visiting our stores.
We also manufacture and sell electronic devices, including Kindle e-readers, Fire tablets,
Fire TVs, and Echo devices, and we develop and produce media content. We strive to
offer our customers the lowest prices possible through low everyday product pricing and
shipping offers, and to improve our operating efficiencies so that we can continue to lower
prices for our customers.
We also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer
service. In addition, we offer Amazon Prime, a membership program that includes
unlimited free shipping on tens of millions of items, access to unlimited instant streaming of
thousands of movies and TV episodes, and other benefits.
Our current and potential competitors include: (1) online, offline, and multichannel retailers,
publishers, vendors, distributors, manufacturers, and producers of the products we offer
and sell to consumers and businesses; (2) publishers, producers, and distributors of
physical, digital, and interactive media of all types and all distribution channels; (3) web
search engines, comparison shopping websites, social networks, web portals, and other
online and app-based means of discovering, using, or acquiring goods and services, either
directly or in collaboration with other retailers; (4) companies that provide e-commerce
services, including website development, advertising, fulfillment, customer service, and
payment processing; (5) companies that provide fulfillment and logistics services for
themselves or for third parties, whether online or offline; (6) companies that provide
information technology services or products, including onpremises or cloud-based
infrastructure and other services; and (7) companies that design, manufacture, market, or
sell consumer electronics, telecommunication, and electronic devices.
We believe that the principal competitive factors in our retail businesses include selection,
price, and convenience, including fast and reliable fulfillment. Additional competitive
factors for our seller and enterprise services include the quality, speed, and reliability of
our services and tools, as well as customers’ ability and willingness to change business
practices.”[1]
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SWOT Analysis
Strengths
Weaknesses
1. Low cost structure, the largest
1. Increasing long-term obligations-to-
merchandise selection and a huge
assets ratio
number of third party sellers
2. Poor R&D capabilities leading to a
2. Synergies between Marketplace,
weak patent portfolio
Amazon Web Services (AWS) and Prime
3. Comparably few physical locations,
3. Unmatched brand reputation in the
limiting Amazon’s expansion potential
retail sector
4. Very low margins on retail business
4. Innovative fulfillment centers and
distribution software reducing order
fulfillment times and costs
5. Reliability and low prices of AWS
makes it one of the most attractive cloud
computing services on the market
Opportunities
Threats
1. The e-commerce market is forecast to
1. Wal-Mart’s efforts to establish itself as
reach US$4.5 trillion by 2021
a leading online retailer
2. Rising demand for private label goods
2. Risk of data breaches
3. Online grocery sales will peak over the
3. Amazon could potentially be sued for
next few years in the U.S.
infringing intellectual property rights
4. Weak U.S. dollar
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Strengths
1. Low cost structure, the largest merchandise selection and a huge number of third
party sellers
Amazon is the largest online retailer in the world. In 2017, the company earned
US$140.235 billion purely from online sales, more than any other retailer in the world.[1] In
2015, we predicted that Amazon would become the 2nd largest retailer (as measured by
revenue) in the world, behind Wal-Mart by 2018 and the Amazon’s extraordinary growth
has allowed the company to achieve this milestone.
Figure 1. Amazon growth rate compared to the U.S. e-commerce sales growth
45%
40.5%
38.5%
40%
39.5%
35%
28.9%
30%
27.1%
27.0%
26.1%
25%
20%
27.9%
24.0%
20.5%
17.2%
16.5%
16.0%
14.7%
16.6%
15%
22.6%
21.9%
20.2%
19.5%
15.4%
15.0%
15.6%
10%
5%
3.8%
2.6%
0%
2006
2007
2008
2009
2010
Amazon Growth Rate
2011
2012
2013
2014
2015
2016
2017
U.S. E-commerce Growth Rate
Source: Amazon financial reports[1] and Digital Commerce 360[2]
Note that Amazon has grown much faster than the entire U.S. e-commerce market,
meaning that the company has actually increased its market share by taking it from the
competitors.
What is the key to such success? According to Jeff Bezos, the founder and CEO of
Amazon.com, the company’s success lies in its low-cost structure and wide variety of
merchandise.
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Figure 2. Jeff Bezos “napkin sketch” outlining Amazon’s strategy
Source: Seeking Alpha[3]
A low-cost structure leads to lower prices, which combined with a huge range of products,
results in a better customer experience. Satisfied customers invariably return to the
Amazon websites, creating ever-growing traffic, which subsequently attracts 3rd party
sellers to Amazon’s marketplace. All of these factors lead to faster business growth for
Amazon.
Amazon follows a cost leadership strategy, but so do many other online and offline
retailers. Why then does Amazon outperform them?

Low-cost structure. By mainly selling online, Amazon doesn’t incur huge costs
related to running physical retail outlets. Online marketplaces also potentially allow
for selling more units without any increase in marginal costs. Amazon constantly
invests in both additional fulfillment centers and to existing centers to enable a
reduction in order fulfillment times and shipping costs. These time and cost savings
result in lower prices that are passed on to consumers.

Selection. According to ScrapeHero[4], Amazon sells over 562.3 million of various
products in its Amazon.com Marketplace. In comparison, Walmart offers only 38
million SKU’s[5] in its online shop, or just 7% of the number of products that Amazon
offers. This vast difference in range is the reason why online customers are more
likely to visit Amazon.com rather than Walmart’s e-shop.

Third party sellers. Amazon’s business model includes accommodating third party
sellers who are able to offer their own merchandise on Amazon’s sites and whose
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products therefore compete against Amazon’s. Third party sellers are mainly
attracted to because of the high volume of traffic on Amazon sites. They often offer
products that are not available through Amazon’s retail division. In 2016 (no data for
2017), Fulfillment by Amazon (FBA) service shipped over 2 billion third-party sellers’
items.[6]- This number does not included the items shipped by third-party sellers
themselves. eBay is the only other online company that has as many third party
sellers as Amazon.
Low prices, a huge product range and the vast number of third party sellers are all key
factors in improving the Amazon customer experience and in driving more traffic to their
sites. Few companies can compete with Amazon in any of these areas.
2. Synergies between Marketplace, Amazon Web Services and Prime
Amazon is involved in 3 key businesses:

Amazon Marketplace

Amazon Web Services (AWS)

Amazon Prime
All three Amazon offerings support each other and create benefits that would not be
achieved if the businesses operated independently.
Figure 3. Amazon’s synergies
Speed and capacity
Marketplace
AWS
Growth and investments
Prime
Source: Strategic Management Insight
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AWS was introduced in 2006 when Amazon realized it could sell its servers’ excess
capacity to other enterprises. For Amazon as an online retailer, the key place to sell its
goods is its website. To run an e-commerce website with millions of visitors each day the
company had to invest heavily in its server infrastructure. These investments and the
resulting server capacity have helped AWS to grow. In return, AWS provides two important
elements for its sites:

Speed. Amazon has calculated that a slowdown of 100ms in page load could cost
them 1% in sales each year.[7] In 2017, that would had equaled to at least US$18
billion loss. Therefore, page load speed is crucial for Amazon. AWS helps to speed
up the website’s load time, so that Amazon is able to serve each customer as
quickly as possible.

Capacity. During the peak times of Cyber Monday (the Monday after the
Thanksgiving holiday in the U.S), Black Friday (the Friday after the Thanksgiving
holiday), and in the several weeks leading up to Christmas, Amazon receives an
overwhelming number of visitors to its sites. AWS’s huge capacity, which is not
needed during the rest of the year, is employed during these peak times to help
Amazon cope with the increased number of visitors.
In 2005, Amazon introduced the Amazon Prime subscription service, which offers access
to Prime Instant Videos, Prime Music, free two-day delivery and many other benefits for a
flat annual fee. There are currently more than 90 million Prime members worldwide who
use Amazon as their primary non-grocery retail store.[8] Prime users buy more
merchandise and spend more on each item than regular users.[1] Marketplace helps to
attract new visitors to Prime through its Fulfillment by Amazon program (FBA).
The FBA program allows third party sellers to place their products in Amazon’s
warehouses, where Amazon takes responsibility for all logistics, customer service, order
fulfillment and returns. This enables more products to become eligible for Amazon Prime,
which is the key for the program to flourish. In addition, packaging and shipping costs are
reduced when two or more items are shipped. As a result, Prime becomes more profitable
and Amazon customer satisfaction increases.
Synergies between Amazon’s Marketplace, AWS and Prime are rarely quantifiable, but
CEO Jeff Bezos recognizes them as providing some of Amazon’s strongest competitive
advantages.[1]
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3. Unmatched brand reputation in the retail sector
Amazon.com owns one of the most valuable brands in the world. The company, despite
having a solely online presence until 2017 and being far behind the largest retailer in the
world in terms of revenue, has an impressive brand reputation. Interbrand [9] and Forbes[10]
have respectively listed Amazon.com as the 5th and 6th most valuable brand in the world,
at US$64.8 billion and US$54.1 billion. The brand was one of the fastest growing brand in
terms of dollar value in both lists in 2017.
Brand value is closely related to a brand’s strength, awareness and reputation. These
factors are much more important for online retailers than offline retailers. Amazon’s rivals
are just a click away and if the company’s customers are not satisfied with the brand they
can easily switch to another online retailer.
Amazon has a reputation as a huge online retailer offering the lowest prices on a vast
range of merchandise, fast shipping, a comfortable shopping experience and great
customer service. Strong brand awareness combined with the company’s positive
reputation helps Amazon to both increase sales and introduce new products to the market
without the need for huge advertising and marketing efforts. Few other online or offline
retailers can effectively compete with Amazon’s brand.
4. Innovative fulfillment centers and distribution software reducing order fulfillment
times and costs
Amazon is well known for both its innovation in order fulfillment and its huge network of
fulfillment centers across the U.S., the U.K. and countries around the world. Fast and
reliable order fulfillment is crucial for Amazon to succeed in the online retail business. In
order to provide such fast and reliable fulfillment the company has to constantly improve its
fulfillment centers and proprietary software to manage product receipt, storage, orderpicking and shipment.
Amazon currently has 592 [11] fulfillment/sortation centers and delivery stations and is
already building its eighth-generation centers. The company uses over 100,000 robots in
its fulfillment centers around the world[12] to help with the storing and retrieval of products
in higher quantities and at a lower cost than ever before. In addition, Amazon uses
advanced software to help monitor inventory levels and even to begin packing orders
based on predictive algorithms.
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Figure 4. The benefits of Amazon using Kiva robots for order fulfillment
Picking time
Pallets in the same
area
Without Kiva
robots
With Kiva robots
60 minutes
15 minutes
75% increase
1 pallet
1.5 pallet
50% increase
Source: Business Insider[13]
Amazon’s innovations in its fulfillment centers have led to the company having one of the
fastest order fulfillment and shipping times in the distribution industry. It has reduced its
costs significantly and ‘Fulfilled by Amazon’ is now one of the lowest priced order
fulfillment and shipping services in the U.S. [14]
No other retailer can match Amazon’s competitive advantage in order fulfillment.
5. Reliability and low prices of AWS make it one of the most attractive cloud
computing services on the market
AWS is a collection of on-demand, pay-as-you-go cloud storage and computing services
that are reliable, scalable and inexpensive. AWS revenue grew by 42.9% to US$17.459
billion in 2017, making it Amazon’s fastest growing business.[1] While AWS still lags behind
Amazon’s core retail business revenue, it is growing faster than Amazon’s retail business.
Figure 5. AWS growth 2014-2017 (revenue in US$ billions)
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20
80%
69.7%
18
70%
16
12
60%
55.1%
14
42.9%
49.4%
50%
10
40%
8
30%
6
20%
4
2
0
10%
4.644
7.880
12.219
17.459
2014
2015
2016
2017
Revenue
0%
Growth
According to International Data Corporation (IDC) research[15], AWS’s key strengths are its
reliability, scalability and inexpensiveness. AWS business customers report the following
benefits of using the service:

Business benefits. Usually, increasing server capacity takes weeks and the costs
of doing that are significant. Now, organizations using AWS can scale their IT
resources in just a few hours for much less cost. AWS enables businesses to make
decisions related to IT infrastructure faster and with no risks.[15]

IT productivity benefits. AWS customers’ IT teams are managing and maintaining
applications 68.1% more efficiently and are capable of deploying 118.4% more
applications due to the well-designed AWS systems infrastructure.

IT infrastructure cost reductions. In-house IT infrastructure requires significant up
front capital investment and isn’t as flexible for an organization as hosting its IT
resources on AWS. Organizations using AWS reported that they saved on average
of 36% on their costs in comparison with using their own IT data centers.[15]

Fewer downtime occurrences. Businesses using AWS also benefited from fewer
downtime occurrences, less time required to resolve issues and an ability to predict
issues and prepare for them accordingly before they happened.
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Figure 6. Downtime instances, management and associated costs with and without
AWS
Without AWS
With AWS
Difference
Unplanned downtime
instances per year
10.6
2.1
8.5
Time to resolve downtime
(hours)
2.4
2.2
0.2
Source: IDC[15]
AWS also compares favorably with other cloud computing service providers. In 2016
AWS’s Elastic Compute Cloud (EC2) hosting service downtime was only 108 minutes, less
Microsoft Azure’s 270 minutes and only a bit higher than Google Compute Engine’s 74
minutes.[16]
Weaknesses
1. Increasing long-term obligations-to-assets ratio
Amazon’s debt-to-asset ratio has risen significantly over the past few years and it is now
one of the highest among its competitors.
Figure 7. Amazon’s and Wal-Mart’s long-term obligations and debt-to-asset ratios (debt in
US$ billions)
Company
2013
2014
2015
2016
2017
Total long-term debt
Amazon
7.433
15.675
17.476
20.301
45.718
Wal-Mart
44.459
40.889
38.214
36.015
-
Long-term debt growth
Amazon
38.6%
110%
11.5%
16.2%
25.2%
Wal-Mart
7.3%
(8%)
(6.5%)
(5.8%)
-
Debt/asset ratio
Amazon
18.5%
28.7%
27%
24.3%
34.8%
Wal-Mart
21.8%
20.1%
19.1%
18.1%
-
Source: The respective companies’ financial reports
[1][5]
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Figure 7 reveals that Amazon’s debt level is growing faster than Wal-Mart’s debt. Its debtto-asset ratio has also been increasing over the same period, while Wal-Mart’s debt-toasset ratio has actually decreased.
Amazon’s debt level isn’t extremely high when looking at the figures alone and most of the
last year debt was accumulated because of the Whole Foods Inc. acquisition. However, it
will become a significant weakness if the company continues to grow by further building
fulfillment centers or acquiring new businesses. Both activities require significant
investments and are usually financed with debt.
2. Poor R&D capabilities leading to a weak patent portfolio
In addition to its retail distribution business, Amazon is manufacturing and selling its own
range of consumer electronics devices such as Kindle Fire tablet, Amazon Echo, Fire TV
and Fire TV Stick. In order for a company to succeed in the technology sector, it must
innovate. Usually, the more a business spends on R&D, the more innovation it creates.
Yet, this doesn’t apply for Amazon. According to the Strategy + Business report[17],
Amazon is spending increasingly more on R&D activities.
Figure 8. R&D spending by Amazon and its largest competitors (in US$ billions)
Company
2016
Change
from 2015
As a % of
revenues
2017
Change
from 2016
As a % of
revenues
Amazon.com
12.5
35.2%
11.7%
16.1
28.3%
11.8
Apple
8.1
33.5%
3.5%
10
24.5%
4.7%
Samsung
Electronics
12.7
(3%)
7.2%
12.7
(0.1%)
7.6%
Microsoft
12.0
5.8%
12.9%
12
(0.5%)
14.1%
Alphabet
(Google)
12.3
24.9%
16.4%
13.9
13.6%
15.5%
Source: Strategy+ Business [17][18]
Usually, high R&D spending results in a huge patent portfolio, which helps a company by
preventing its innovations from being used by other companies and also protects it against
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patent lawsuits. Nonetheless, Amazon, which spent the largest amount on R&D in the
world[17], has been registering considerably fewer patents than its competitors.
Figure 9. 2015-2017 utility patents granted to Amazon and its competitors in the U.S.
Company
2015
2016
2017
Total
Amazon
1,136
1,662
1,960
4,758
Alphabet (Google)
2,835
2,836
2,454
8,125
Microsoft
2,408
2,398
2,440
7,246
Apple
1,937
2,101
2,225
6,263
Samsung
Electronics
5,059
5,504
5,810
16,373
Source: U.S. Patent and Trademark Office[19][20][21]
Again, Amazon is far behind its competitors in the technology sector, having been granted
only 4,758 utility patents during 2015-2017, compared with Samsung Electronics, which
totaled 15,499 utility patents over the same time period.
In order for Amazon to be able to better compete with its rivals in the future, it has to
strengthen its R&D capabilities and patent portfolio. Otherwise, Amazon will be at a
significant competitive disadvantage and will likely fail to grow its consumer electronics
business.
3. Comparably few physical locations, limiting Amazon’s expansion potential
Recently, Amazon was a solely online retailer with no physical locations. In 2015, the
company opened its first physical bookstore. As of March 2018, Amazon already has 17
bookstore locations and 63 pop-up stores across the U.S.[22][23] In 2017, the company also
opened a grocery store called Amazon Go and for the first time, entered grocery brick and
mortar business. In the same year, Amazon acquired Whole Foods Market Inc. for
US$13.2 billion and significantly expanded its grocery business with an additional 472
locations across the U.S., Canada and United Kingdom.[1]
By acquiring Whole Foods and entering grocery brick and mortar business with its own
brand, Amazon has eliminated one of its major weaknesses (limited expansion potential
for grocery business). Nonetheless, compared to other major retailers in the U.S. and in
international markets, Amazon still lacks in retail locations.
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Amazon’s online retail store has many advantages over the competitors. However, relying
mostly on online presence also provides some of the following limitations:

Sales of heavy and bulky items. Any item which can’t fit into a normal-sized post
office (P.O.) box is considered by Amazon to be a large item. Amazon has a special
policy regarding the shipment of over-sized and large items, they are treated
differently to normal-size items. Bulky items are not eligible for Prime and for a good
reason.[26] They take much longer to ship and their shipment is usually costly, both
of which work against Amazon’s core selling proposition. That is why bulky items
are not as popular on Amazon as they are in physical retail stores.

Less impulse sales. Online retailers, especially Amazon, are getting better at
enticing customers to buy more than they had planned, but they still lag behind
offline retailers in this facet of retailing. According to a study done by A. T.
Kearney[27], 40% of people make impulse purchases in a physical retail store, while
only 25% of online shoppers do the same. The reasons that retail stores are
capable of selling more impulse items are that they have more space to display the
items, those items can be touched and tried on if necessary. and most importantly,
they can be purchased and used instantly. Online retailers simply can’t offer those
potential benefits to consumers.
Amazon is in the right direction to enter brick and mortar retail business, but the company
should further increase its physical presence to capture more sales in the U.S. grocery
market, which was worth US$641.5 billion in 2017.[25]
4. Very low margins on retail business
In 2017, Amazon earned US$177.866 billion in total revenues. Retail sales, both in online
and physical stores, were US$114.152 billion or 64.2% of the total revenue. The rest of the
revenue included revenue from the third-party seller services, subscription services, AWS
and other revenue.
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Figure 10. Amazon revenue breakdown by product
3%
10%
5%
Online stores
Physical stores
Third-party seller services
18%
Subscription services
61%
AWS
Other
3%
Source: Amazon financial statements[1]
Despite, being the major source of the company’s income, the retail business has
notoriously generated mostly losses over the company’s entire existence. Since the
company’s first sales in 1995, the company has not generated any profit until 2003.[24]
Since then, Amazon only sometimes earned profits on its billions worth retail business. In
2017, the company has lost the money on its retail business again. The company reported
the sales of US$106.110 billion and the operating income profit of US$2.837 billion in its
North America segment and the sales of US$54.297 billion and the operating income loss
of US$3.062 billion in international markets. These revenues do not include AWS business
income, but include the revenue from the services, which often are much more profitable
than the retail business. This means that Amazon has actually lost more than US$225
million from its retail business yet again.
In the past, Amazon’s low profitability was explained by the need to fuel its rapid
expansion. Today, Amazon is huge and its capacity does not need to grow as fast as
before. Amazon should streamline its operations to make its retail business, which
generates the sales of US$114.152 billion a year, profitable again.
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Opportunities
1. The e-commerce market is forecast to reach US$4.5 trillion by 2021
According to eMarketer[28], the global retail market will expand from US$23.445 trillion in
2017 to US$27.726 trillion by 2020, a growth rate of 18.3%. The e-commerce market is
expected to expand significantly faster than the traditional retail sector, from US$2.290
trillion in 2017 to US$4.479 trillion by 2021, a growth rate of 95.6%. Based on these
forecasts, e-commerce will account for 14% of total retail sales by 2020.
Figure 11. Total retail sales worldwide (actual and forecast), 2015-2020
20.795
22.049
26.287
24.855
23.445
27.726
5.8
6.0
6.3
6
5.8
5.5
2015
2016
2017
2018
2019
2020
Total Retail Sales (in trillions, US$)
Change (%)
Source: eMarketer[28]
Figure 12. Total e-commerce sales worldwide (actual and forecast), 2015-2021
5
5
4
4
3
3
2
2
1
1
0
23.2
25
21.1
20.1
19.1
20
15.9
15.5
17.4
15
10
5
1.548
1.859
2.290
2.774
3.305
Total E-Commerce Sales (in trillions, US$)
3.879
4.479
0
Change (%)
Source: Statista[29]
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The main e-commerce growth markets will be in the China and the U.S markets.[42] China
is also forecast to become the largest e-commerce market in the world, with sales
reaching US$1.973 trillion by 2019. The U.S. and the U.K. will trail in 2nd and 3rd place with
sales of US$534.95 billion and US$143.19 billion, respectively. Currently, the U.S. and
U.K. markets are the largest Amazon’s markets in terms of sales, with the company having
a strong e-commerce presence in both. Amazon currently operates in 9 of the 10 largest ecommerce markets in the world, including China, the U.S., the U.K., Japan, Canada,
France, Germany, Brazil and Australia.
Figure 13. Top 10 countries ranked by total e-commerce sales worldwide (actual and
forecast, 2015-2019 (in US$ billions)
Countries
2015
2016
2017
2018
2019
1. China
672.01
911.25
1208.31
1568.39
1973.04
2. U.S.
340.61
384.89
431.84
481.94
534.95
3. UK
99.39
110.32
121.36
132.28
143.19
4. Japan
89.55
100.3
111.33
122.46
134.1
5. Germany
61.84
68.95
76.47
82.58
87.54
6. France
42.6
46.1
49.68
53.23
56.69
7. South Korea
38.86
42.75
46.59
50.55
54.14
8. Canada
26.83
30.82
35.08
39.8
44.98
9. Brazil
19.49
22.12
24.66
27.13
29.65
19.02
20.66
22.31
23.94
25.61
10. Australia
Source: Statista
[42]
Amazon could capture a large market share of the growing e-commerce market by
focusing its efforts on China. The company should also open in its operations in South
Korea and Russia, where e-commerce markets are also forecast to grow significantly over
the next few years.
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2. Rising demand for private label goods
Private label goods have been in retail stores for years. Usually, private label brands are
much cheaper than the same quality national or local brands, and in addition, offer better
margins for retailers.[30]
Most of the private label sales growth is attributed to growing customer loyalty and the
better quality of private label merchandise. Results from various surveys show that
customers also value private label products more than they did a few years ago. According
to the Nielsen survey, as many as 65% of customers think that private label products are
as good as national brands, and more than 77% believe that their quality is the same or
better than a few years ago.[30]
While it’s not clear how sales of private label non-grocery brands compare to sales of
national brands, it seems that Amazon will benefit from selling private label brands.
In 2009 Amazon introduced AmazonBasics, a brand through which the company sells
cables, batteries, discs and other related products. Since then, the company has
expanded its AmazonBasics range and now sells private label brands, such as Pinzon
kitchen gadgets, Strathwood outdoor furniture, Pike Street bath and home products, as
well as Denali tools. In 2015 Amazon launched its Elements brand, which sells coffee,
soup, pasta, water, vitamins, dog food and various household items.[31]
Supermarket News predict that the market for private label brands will be worth around
US$200 billion in the U.S. by 2020.[32] Therefore, Amazon should increase the range of the
private label products it sells to improve the margins and sales.
3. Online grocery sales will peak over the next few years in the U.S.
In 2017, U.S. consumers spent US$641.5 billion buying groceries.[25] Groceries are the
second largest retail category in the U.S. in terms of sales, after automobiles. The grocery
has been largely undisrupted by e-commerce until now. According to FMI-Nielsen report,
online groceries sales increased to US$20.5 billion in the U.S. in 2016. [33] In 2017, online
grocery sales represented just 3.8% of the total U.S. grocery sales.[34] That’s a huge gap
between the rest of e-commerce, which, according to YCharts statistics, accounted for
9.1% of total retail sales.[35]
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Figure 14. E-commerce and online grocery sales as % of total retail and grocery sales
8.2%
7.5%
10.0%
9.1%
7.1%
5.1%
3.0%
2.4%
2015
2016
3.8%
2017
2018
2019
2020
U.S. e-commerce sales as % of total retail sales
U.S. online grocery sales as % of total grocery sales
Source: YCharts[35]
Food Marketing Institute and Nielsen forecast that online grocery ordering will grow very
fast in the future. The market is expected to reach 10% of the total U.S. grocery sales with
U.S. consumers spending over US$100 billion for groceries online in 2022.
Amazon has a great opportunity to capture a larger market share of the growing online
grocery sales market in the U.S. via its AmazonFresh service and Whole Foods Market
stores. AmazonFresh was introduced in 2007 and offers both online grocery ordering and
home delivery and is now available in many areas across the U.S. and many international
markets. After Acquiring Whole Foods Market, Amazon started grocery delivery to homes
from some of the chains’ stores, but as of March 2018, the delivery areas are only limited
to San Francisco and Atlanta.
4. Weak U.S. dollar
Currency exchange rates affect every multinational company, including Amazon. A strong
U.S. dollar means that the company’s revenue and profits decline when converted to the
U.S. dollar. On the other hand, a weak dollar does not only increase the profits but also
makes the company’s products cheaper and more attractive to the customers abroad.
In 2017, Amazon earned US$57.38 billion or 32.3% of its revenue outside of the U.S. and
US$120.486 billion or 67.7% in the domestic U.S. market. A weak dollar provides an
opportunity for Amazon to expand its sales outside of the U.S. and diversify its geographic
revenue.
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In 2017, the U.S. dollar declined in value against other currencies for the first time in 5
years. Current forecasts indicate that the U.S. dollar exchange rate is going to continue to
decline against other currencies in 2018 as well. This means that Amazon’s products will
become even cheaper abroad and its revenue and profits from outside the country are
likely to increase when converted to U.S. dollars.
Threats
1. Wal-Mart’s efforts to establish itself as a leading online retailer
The retail sales of physical stores compared to e-commerce sales are growing very slowly.
Many retail companies, including Amazon’s key rival Wal-Mart, are making huge efforts to
establish themselves as electronic commerce retailers. In 2017, Wal-Mart’s comparable
store sales in the U.S. grew by only 1.6%, while the total sales of the Walmart U.S. grew
by 3.2%. Most of the additional growth was achieved through e-commerce sales, which in
2016 grew by 16.11%.[5] Wal-Mart now has e-commerce websites in 11 countries and
competes with Amazon in the U.S., U.K., Canada, China and Japan.
Wal-Mart cannot compare to Amazon.com yet, but the company is strongly focusing on
expanding its e-commerce operations:

New fulfillment centers. As of January 2017, Wal-Mart had 22 dedicated U.S.
fulfillment centers and plans to add new facilities over the next few years. In total,
the company has 39 fulfillment centers around the world dedicated to e-commerce
only.[5] The company can easily convert its existing distribution centers or
superstores to new fulfillment centers when needed, without significant additional
costs.

Second most popular retail app. Wal-Mart has built one of the fastest-growing
retail apps, which now has over 82.54 million users. It is the 2nd most popular retail
app after Amazon’s.[37] Unlike other traditional retailers, Wal-Mart has figured out
how to offer a useful app and to attract visitors to both its online and offline stores.
Figure 15. Most popular retail apps in the U.S. (users in millions)
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Etsy
Kohl's
Best Buy
Groupon
24.63
29.33
39.81
43.48
Target
eBay
50.94
61.59
Wal-Mart
82.54
Amazon
134.44
Source: Statista[37]

Grocery deliveries. Wal-Mart’s online grocery shopping service has been
increasing in popularity over the last few years, and the company has announced
that it will expand the service to more cities in the U.S. Currently, the company
offers a grocery delivery service in over 760 locations in the U.S.[38] Wal-Mart’s
grocery delivery service directly competes with AmazonFresh and it does that
successfully.

In-store pick up. Unlike Amazon, Wal-Mart can offer in-store pick up of its items
that have been bought online. 70% of the U.S. population is within 5 minutes walk
of a Walmart store, so this option may be more convenient for many shoppers.[39]
In-store pick up doesn’t cost anything for either a shopper or Wal-Mart, saving both
delivery costs and time.
Although Walmart can’t match Amazon.com in e-commerce, it has some of the strengths
that Amazon doesn’t.
2. Risk of data breaches
Amazon is the world’s largest online retailer, having over 310 million active users and
selling billions of items each year.[40] The company collects credit or debit card information
from every customer who makes a purchase on its sites. Amazon stores that credit/debit
card data and protects it from theft. Nonetheless, data breaches can occur and customer
data does get stolen and exposed from time to time.
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According to the Identity Theft Resource Center, instances of personal information theft
are growing. In 2017, a record high of 1,579 identity thefts were reported.[41] Since 2005,
billions of records of personal information have been stolen, with significant associated
damages incurred by both affected businesses and their customers.
Some of the biggest credit/debit card information thefts have affected e-commerce giants
such as eBay, Wal-Mart and even Amazon. All of these companies have lost customers
and sales because of it. With the growing number of data breaches, there is always a
potential risk of Amazon being breached again.
3. Amazon could potentially be sued for infringing intellectual property rights
In addition to its retail business, Amazon is also a technology company, an industry in
which nearly every large company is involved in lawsuits over patent or other intellectual
property infringement. Amazon, sometimes unknowingly, could be infringing others’
patents and sued as a result. Lawsuits are costly and they damage a company’s brand.
That is why Amazon identifies this as the key risk to their business:
“Other parties also may claim that we infringe their proprietary rights. We have been
subject to, and expect to continue to be subject to, claims and legal proceedings regarding
alleged infringement by us of the intellectual property rights of third parties.
Such claims, whether or not meritorious, may result in the expenditure of significant
financial and managerial resources, injunctions against us, or the payment of damages,
including to satisfy indemnification obligations. We may need to obtain licenses from third
parties who allege that we have infringed their rights, but such licenses may not be
available on terms acceptable to us or at all. In addition, we may not be able to obtain or
utilize on terms that are favorable to us, or at all, licenses or other rights with respect to
intellectual property we do not own. These risks have been amplified by the increase in
third parties whose sole or primary business is to assert such claims.”[1]
Summary
There are many factors that helped Amazon.com to become the largest online
marketplace. The first one being, the supplemental businesses, like Amazon Web
Services and Amazon Prime, that simply made the marketplace better and also increased
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the company’s revenue significantly. The second factor is a long-term thinking. The
company would never have made it this far if it tried to operate for short-term or even midterm. Amazon marketplace is still unprofitable business, but the investors seem to care
little about it, seeing such a huge growth potential.
Amazon’s marketplace business should invest more into technological advancements that
would allow the company to collect, package, distribute and deliver the items to customers
faster and cheaper. Amazon could also streamline its operations, so it would become more
profitable than it is now.
Amazon’s AWS business is doing extremely well and the company should separate AWS
from Amazon.com, to let AWS grow organically from the marketplace. Both businesses
should still keep close relationship to benefit from the synergies they create.
As for the weaknesses, Amazon should improve its business policies regarding warehouse
workers’ conditions. Bad publicity doesn’t help Amazon, but hinder its performance.
Amazon’s limited physical presence is a weakness, when compared to Walmart or other
major brick-and-mortar businesses, but the company shouldn’t focus too much on
addressing it. Low margins or incompetence in R&D investments will make more damage
in the future if not addressed now.
There are quite a few opportunities Amazon could pursue and the largest one is to grow its
marketplace business by entering new markets or strengthening company’s position in the
current ones. There’s still lots of growth potential in Asia.
Amazon also already pursues online grocery opportunity, which is, in my opinion, the next
biggest growth opportunity for the company right now.
Few threats could really hurt Amazon’s business. Data breaches will likely occur and will
hurt the company’s business but not in terms of billions of U.S. dollars. In the U.S.,
Walmart is the most serious Amazon’s online competitor, but Walmart’s e-commerce
growth has slowed down and it is unlikely that it will pose significant threat to Amazon.
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