5 Industries Amazon Entered But Didn’t Disrupt

Photo of woman grocery shopping
 

By Ben Rudolph

“Amazon is launching _______ in an attempt to target the ______ industry”. I am sure you can fill in the blanks. This past week, beauty was the industry of choice. Amazon announced the debut of the Amazon Professional Beauty Store. With this new storefront, Amazon plans to “offer those in the professional beauty industry even more selection through the convenient shopping experience [its] customers love.” 

Amazon has a history of disrupting profitable businesses and industries, in addition to alarming analysts and investors with its every move. Cue the market free-fall in the beauty industry after Amazon’s announcement. Revlon’s shares were down 4%, Ulta Beauty’s shares were down 3%, and Sally Beauty Holdings’ shares were down 17% after Amazon issued its press release. 

Despite Amazon’s brutal efficiency, focus on the customer experience, and drive for innovation, the industry-conquering juggernaut does not always win. Here are five examples of industries and product categories Amazon has entered, but has failed to disrupt.

1. Grocery Stores and Food Delivery: “Alexa, buy Whole Foods”. It has now been just over two years since the e-commerce giant announced its plan to acquire Whole Foods. At the time of the $13.7 billion purchase, grocery stocks did not look fresh. Kroger’s shares dropped by 12%, Costco’s shares dropped by 6%, and Walmart’s shares dropped by nearly 5%.

What has Amazon accomplished in the past two years? It has expanded Whole Foods’ grocery delivery options, Prime membership discounts, and cut prices on select frequent purchases which have helped to alter the “whole paycheck” reputation of its premium acquisition and demonstrated Amazon’s ability to leverage its typical playbook. Apart from these moves, however, the Whole Foods’ customer experience doesn’t feel significantly different. 

For example, YouGov data shows that consumers’ willingness to shop at Whole Foods remains the same as willingness at the time of the acquisition. Financially, a turnaround is not evident with Whole Foods posting a revenue decline of 2.7% in Q4 of 2018, compared to the year prior. More broadly, the food industry remains an enigma despite Amazon’s various forays into it. Last month Amazon announced the closure of Amazon Restaurant its restaurant food delivery service that competes with DoorDash and Uber Eats, and has slowed its aggressive roll out of its Amazon Fresh grocery delivery service.

2. Smartphones: In 2014, Jeff Bezos released the Amazon Fire phone. Seeking to plant Amazon’s presence in the world of mobile phones, the Fire phone was supposed to provide Amazon with a direct link to its users through a “3D” display and a camera that could identify products and link users to them on Amazon. Yet, this device never took off, and the Fire phone may be the only true “failure” on this list.

Most phones are either beautifully designed and high end, or carry an irresistibly low price tag. The Fire phone had neither. The phone paired a plastic industrial design with an iPhone price tag and a 3D display called “dynamic perspectives”. Apart from that stand-out, but unnecessary feature, the Fire phone lacked the established ecosystem of the iPhone and the App Store or the cheap price tag of Android. Unable to overcome these competitive disadvantages, Amazon no longer sells the device. To give you an idea of how large of a debacle the device was for Amazon, in the Christmas quarter of its launch year, Amazon took a $170 million loss on the Fire phone due to write offs. 

3. Diapers: For anyone who has read “The Everything Store”, a quasi-autobiographical story about both Bezos’ and Amazon’s rise, Diapers.com is the pinnacle of Bezos’ ability to use Amazon’s sophisticated pricing capabilities to beat out competitors.

In 2009, just as Diapers.com was gaining traction, Bezos had one of his SVPs friendly “suggest” that Diapers.com accept a buyout from Amazon. Amazon then proceeded to discount its diaper and baby products by 30%, and have its pricing bots match Diapers.com price changes. On the morning of Diapers.com’s next meeting with Amazon to discuss a sale, Amazon introduced a new service called Amazon Mom that offered huge discounts on diapers and other baby supplies as well as free shipping. It was estimated that Amazon would lose $100 million in 3 months if it kept prices that low on those items. However, Diapers.com recognized the inevitable and sold its business to Amazon for $545 million in November 2010.

Unfortunately for Amazon, this half-billion dollar bet didn’t pay off. Amazon shuttered Diapers.com and its parent company, Quidsi, in 2017 due to profitability concerns. The other bidder for Diapers.com, Wal-mart, remains the leading seller of diapers today.

4. High-end Jewelry: By 2003, Amazon had demonstrated proof-of-concept for its business through e-commerce sales of Books, and then CDs and DVDs. Amazon then started to look at other product categories to sell on its marketplace and Bezos selected jewelry as the next big opportunity. Amazon was tempted to sell high end jewellery due to the ability to ship items cheaply as well as the category’s high margins. 

Though alluring, selling jewelry online posed some challenges. Displaying products in high quality detail online proved to be an issue, the expensive goods tempted some workers in fulfillment centers to engage in pilfering, and the jewelry industry’s pricing model contradicted with Amazon’s resolve to offer the lowest prices. Pivoting, Amazon began to let more experienced retailers sell through Amazon’s Marketplace and make a commission. Amazon also spent months designing specialized wooden packaging for the third of jewelry sold that Amazon shipped directly to customers, and Amazon contracted Paris Hilton to be the face of its ring-builder tool.

Jewelry did become a small profit maker, but not in the way that Amazon thought it would. The ring designing tool and diamond search functionality was taken off of Amazon.com in 2006. Ultimately, e-commerce is not a platform for every product category. Something as emotional and consequential as an engagement ring still makes many consumers want to shop for merchandise like that in an actual store.

5. TV and Entertainment: Don't get me wrong, Amazon Prime Video is an excellent streaming service and has created various Emmy-award winning TV shows like The Marvelous Mrs. Maisel. However, Amazon’s entry has hardly damaged category incumbent Netflix or Disney. This is a similar tale of Amazon Prime Music’s lack of market share compared to Spotify or Apple Music.

This past year has witnessed large spending by Amazon Studios without the corresponding results. The subsidiary bought a considerable number of films at the Sundance Film Festival, but has not seen payoff in box-office results. Its highest-profile buy, Late Night, starring Mindy Kaling earned only $11 million in its first two weeks, and is expected to lose $40 million. This is compounded by releases like Beautiful Boy with Steve Carell and Timothee Chalamet that grossed less than $7 million.

Of course, Amazon Studio’s purchases contribute to the back-catalogs of Prime Video and Prime Music which serve as vehicles embedded into the overarching Prime subscription service. It is hard to quantify their value-added benefit to the Prime bundle, but with a streaming video category facing new entrants from Disney, Apple, and UniversalNBC next year, it is fair to say Amazon has not and likely will not gain traction in this category.

Let’s not get too far ahead of ourselves though. Amazon remains an amazingly innovative company, especially at developing new categories like online book selling, cloud computing and Alexa powered voice-devices. Bezos is notorious for reinvesting profits back into Amazon, as opposed to paying dividends or engaging in share buyback programs, allowing it to enter product categories even if there is a high chance of failure. Just because Amazon has entered your industry doesn’t mean it’s endgame for you. Try to weather the short-term storm of analyst fears and continue improving your customer’s experience. Amazon may be the “everything store”, but no company, not even Amazon, can bat 1000.

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Tricia McKinnonAmazonComment