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Amazon innovates

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SEATTLE — Recent moves by Amazon.com Inc. make it clear that the world’s e-commerce behemoth is continuing to ratchet up the pressure on traditional retail. Most recently, Amazon has invited major consumer packaged goods manufacturers, including General Mills Inc. and Mondelez International Inc., to a three-day gathering at its headquarters here in May, according to Bloomberg News. The purpose of the meeting is to entice suppliers to bypass, or at least augment, distribution through such brick-and-mortar retailers as Walmart, Target Corp. and Kroger Co. in favor of ­e-commerce.

“Times are changing,” states an invitation obtained by Bloomberg. “Amazon strongly believes that supply chains designed to serve the direct-to-consumer business have the power to bring improved customer experiences and global efficiency. To achieve this requires a major shift in thinking.”

That kind of shift would include product packaging, which currently is designed primarily with in-store display in mind, and could extend even to manufacturing methods.

Amazon’s timing just might be right. A number of major manufacturers have made e-commerce options available to consumers in recent years, perhaps partly in response to increasing pressure from their major retail partners. For example, Newell Brands recently announced that it is looking to expand its Web presence as shrinking customer traffic at malls has pressured sales of a number of its brands.

Significantly, Walmart also recently hosted its CPG suppliers, but the main theme of that gathering reportedly was to tighten the screws on pricing.

“Many brands are at a crossroads — they need to increase the online presence and performance of their brands to connect with more customers and ultimately grow their overall business,” says Jenn Markey, vice president of marketing for 360pi. “At the same time, brands must also support their traditional retail partners and minimize channel conflict to protect the majority of their current business.”

A further incentive for manufacturers to build an e-commerce channel, Markey adds, is that many retailers are continuing to subsidize their businesses by pressuring suppliers for increased trade funds, whether there is any benefit for the brand or not.

“For products where the store is still essential for shoppers to see/feel/experience the brand, manufacturers need to tread very carefully, even at the expense of their online ambitions,” she says. “For replenishment products where shoppers essentially repeat purchase, building online channels makes a lot of sense for a brand, especially in the age of one-hour drone-enabled delivery. Repeat-purchase models also help the brand get and remain entrenched with shoppers.”

Amazon, of course, offers its own repeat-purchase model, the Amazon Dash button, which enables Amazon Prime members to reorder a growing assortment of household products literally with the push of a button. A recent report from Fung Global Retail and Technology notes that Amazon has increased the number of buttons — each of which is dedicated to a single product and brand — from the original 10 to more than 150.

The report, issued last fall, estimates that half-a-million of the devices had shipped, and states that the Dash button order rate has recently doubled to more than two button presses a minute, which translates to more than a million orders a year.

Markey cautions, however, that brand manufacturers should also be cautious in view of Amazon’s long-term ambitions, particularly in terms of its private label plans.

While Amazon may seem determined to crush brick-and-mortar retailing, it may be more accurate to conclude that it simply wants to own it. Recent reports indicate that the company is examining a number of possible physical store concepts, and it clearly is pushing ahead with at least two.

In Seattle it is testing two pick-up locations for its AmazonFresh online grocery service, which has expanded to more than 20 metropolitan markets.  But Amazon has apparently stumbled on the way to launching its Amazon Go cashierless convenience store concept. The initial locations were slated to open at the end of March, but problems with the technology have pushed the opening date back.

These concepts may just be the beginning of Amazon’s brick-and-mortar plans. The company already has five Amazon bookstores in operation, with five more announced, and it reportedly is also considering a furniture and home appliance prototype and an electronics store, according to The New York Times.


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