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Beating the Profits out of Retail

by Robert Hetu  |  July 13, 2015  |  1 Comment

Frequently I hear discussions around retail that the pricing battles are not a race to the bottom.  When an unprofitable company continues to lead a sector unabated, the erosion of the possibility of profits is a real result.  This was my first thought about Amazon’s Prime Day event.  Not that the event itself should be considered a bad idea, quite to the contrary, as the goal for Amazon appears to be endless growth at any cost.  I am sure the result will be a record sales performance and growth in the Prime participation rate.  Good for investors, good for Amazon, great for consumers.  The bone that I want to pick is not with Amazon, its with the financial market analysts and pundits that continue to reward the company.  There is a real danger in this.

New companies with innovative ideas have entered the retail marketplace and through innovation have usurped and ultimately sank competitors.  I am all for the market of ideas and if older companies cannot survive they must run their course.  However I have struggled to find a similar example from history where a company that is no longer new to a market, having at best questionable performance, continues to have such dramatic influence on the market.     Of course the results are competitive actions that further destroy hopes of a profitable future for many retail companies.  My issue remains lack of a level playing field where other established companies don’t have the same leeway to pursue growth at all costs.  Even more importantly that a company exempted from the long standing measure of performance is setting the pace for the industry.

Technologically enabled consumers are doing what you would expect.  Seeking the best experience, convenience, and the best price, they have flocked to Amazon. Because Amazon has not been required to generate a reasonable rate of return it has been able to have an undue influence on the market and created a downward trend on profitability that will not be easily reversed.

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Category: ecommerce  

Tags: amazon  consumers  ecommerce  gross-margin  retail  trends  

Robert Hetu
VP, Analyst Retail
7 years at Gartner
29 years IT Industry

Bob Hetu is a Research Director with the Gartner Retail Industry Services team. His responsibilities involve tracking the technology markets and trends impacting the broad-based retail merchandising and planning areas. Mr. Hetu is an expert in the areas of brand, vendor and assortment management, merchandise planning, allocation, and replenishment. Read Full Bio

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