Jumping Ship

Is it smooth sailing ahead as Amazon steams into its next quarter-century? Or, as some suggest, are there Titanic-sized icebergs lurking?
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Posted January 7, 2020

“Too big to fail.”

The notion coming out of the Great Recession, beginning in 2008, was that the toppling of the struggling Wall Street banks could create an economic crisis that would drag the entire U.S. economy down.

With that crisis averted, the term has taken on an additional wrinkle in the past decade. “Too big to fail” now suggests that a successful industry giant, with all of its resources and history of success, simply can’t fail, if only because it’s too big and successful to stumble and fall.

However, in the more-free-market world of consumer goods retailing, we’ve seen those giant stumbles over and over again. In fact, there’s been a pattern of the biggest, most top-heavy, most insular, most slow-to-move retail organizations topple over from their own giganticness. We saw a century’s worth of “the country’s largest” retailers – Montgomery Ward, A&P, Sears and Kmart – collapse. And Walmart had its worrisome moments, though it has shown a surprising nimbleness to reinvent itself that has not only saved it but probably strengthened it.

Amazon, currently at the top of that heap, would seem to be safe for a long time. In maritime terms, it appears unsinkable. So perhaps it’s noteworthy that on the year after the retail-digital-publishing-warehousing-innovating-distribution-transportation-e-commerce-AI behemoth celebrated its 25th anniversary, its downfall is now being foretold.

A Forbes.com article, posted on the first business day of 2020, led with this headline: “Is This the Beginning of Amazon’s Meltdown?”

Okay, every wave that rushes in inevitably rushes out again. Blame that on the moon. But potent, powerful, innovative Amazon, after just 25 years? It took Sears nearly 130 years to crumble.

True, things happen more quickly now. Where’s your Palm Pilot? Your Google Glass? Your Segway? Your QR codes?

But you probably want to know why Forbes is teasing Amazon’s – what was it? – “meltdown.”

It started with Amazon’s original model, which was to sell books it acquired from distribution warehouses on a “buy-low-sell-just-slightly-higher” formula. But Jeff Bezos’ early investment in a massive distribution system sliced his margins as thin as Nova Scotia salmon. (“Making it up on volume,” as the old joke goes, which, of course, is precisely what Amazon did do. Remember the quandary of the early millennium? “How long can Amazon fail to turn a profit?”)

Bezos never intended to sell only books. It was a test pilot. His theme from the very beginning was, “The everything store.” And as he moved on from just books, he created a clearing house for branded everything! Third-party suppliers fought to be featured on the Amazon platform, even if it cost them dearly. Amazon charged large partnering fees, and the plan to base a retail strategy on lowest prices meant everyone’s margins were thin.

And that led to the crack in the ice that led to the Forbes prediction. In November, Nike announced it would no longer be part of the Amazon empire. Nike is the twelfth-largest consumer brand company in the world. Was this the Boston Tea Party of the digital world?

Nor was it just Nike. Carol Spieckerman, the retail consultant based in Bentonville, Ark. (with no affiliation to Walmart), told me a month ago that one of the retail trends of 2020 would be more brands declaring their independence from Amazon.

As Forbes reported, Vans shoes, Birkenstock, Ralph Lauren, Rolex, Louis Vuitton, Patagonia and North Face have all jumped ship. If you see their products on Amazon, it’s because they’re being listed by re-sellers. Nike, for one, now sells online exclusively on its own site. Birkenstock, for another, issued a strict order to several thousand of its retail partners to pull all Birkenstock products from Amazon.

Of course, Amazon retains considerable leverage, based on its customer base of 150 million. In 2018, Tumi, the luxury luggage company, switched to another wholesaler that then listed the company’s products on Amazon. Until Amazon told Tumi: Stop selling through a middleman or get de-listed from Amazon entirely. And Tumi had little choice but to comply.

Amazon, unsurprisingly, proclaims it has its brand partners top of mind. “If sellers weren’t succeeding, they wouldn’t be here,” Jeff Wilke, the CEO of Amazon’s consumer business, recently told The New York Times.

But there’s a price to pay. “The secret of Amazon is we’re happy to help you be very successful,” David Glick, a former Amazon VP who left the company last year, told The Times. “You just have to kiss the ring.”

How many more big brands will decide that the cost of that kiss is too high? And will it lead to the mighty Amazon trickling to a babbling brook?

Not this year. Probably not this decade. Nor the next 25 years. But at some point, some clever entrepreneur might figure out how to create a new reality, the way Bezos did 25 years ago.

The Titanic – once the world’s largest luxury ocean liner – comes to mind. It, too, was called “unsinkable.”

As a journalist, writer, editor and commentator, Steve Kaufman has been watching the store design industry for 20-plus years. He has seen the business cycle through retailtainment, minimalism, category killers, big boxes, pop-ups, custom stores, global roll-outs, international sourcing, interactive kiosks, the emergence of China, the various definitions of “branding” and Amazon.com. He has reported on the rise of brand concept shops, the demise of brand concept shops and the resurgence of brand concept shops. He has been an eyewitness to the reality that nothing stays the same, except the retailer-shopper relationship.