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The Amazon Effect and the Future of Retail Businesses

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The Amazon Effect – known as “the disruption of brick-and-mortar stores in the retail market, caused by a dramatic increase in online sales” – has impacted all retailers. It has also raised customer expectations of what they can purchase and how companies should behave.

But this disruption of traditional retail businesses has increased in scope since the COVID-19 pandemic began in 2020. Many customers chose to switch to more online shopping in accordance with pandemic-related restrictions.

As the pandemic continues through the rest of 2021 — and possibly into 2022 — how will traditional large retail stores like Walmart and Lowe’s cope? How will smaller businesses cope?

However, online businesses such as Amazon have not taken over all retail shopping. Many brick-and-mortar businesses adapted to the pandemic by offering walk-in service, curbside pick-up services or online ordering.

Amazon Has Forever Redefined Retail Shopping

As the Amazon empire expands, its dominance threatens to impact customer retail buying habits more than business experts originally imagined. Since its origin, Amazon has permanently redefined retail shopping.

To compete with online retailers like Amazon, brick-and-mortar businesses have had to re-imagine their business model in order to survive. But Amazon is not satisfied with just its dominance in the online world. The company has also created brick-and-mortar stores like Amazon Go, selling what it expects consumers of all ages need.

But there is a problem that Amazon presents to a variety of people and businesses. Not every shopper is happy with online shopping.

Ecommerce and the Amazon Effect

If you prefer purchasing food, clothing, cars, books or anything else sold online, you are contributing to the Amazon Effect. Buying products online is a more convenient shopping experience, which is a major part of ecommerce’s popularity.

Protection against COVID-19 has also been a consideration for many shoppers. Shoppers were afraid to step into congested areas like shopping malls and were reluctant to stand next to other shoppers who were possibly infected with the coronavirus.

The COVID-19 pandemic shuttered many shopping malls and retail stores due to state-mandated restrictions. Some malls are still fighting to reopen.

But there is a human factor problem with ecommerce. With online shopping, customers cannot always talk to a human salesperson; they also cannot open a box or touch a product before deciding to purchase it.

Closing Retailers, the ‘Retail Apocalypse’ and Building Trust among Customers

In 2018, a Cleo article written by Adam Hughes described how Amazon was perpetrating a “retail apocalypse.” This article chronicled how over 6,000 U.S. retail stores, such as Sears, had closed over the previous three years.   

During this time, there was no crisis, such as the current pandemic, to change the buying habits of customers. Also, there wasn’t any crisis in the global supply chains for all their retail products or a transportation failure within the U.S. in regard to transporting goods to conventional retail stores.

However, online shopping became more common during this time frame as well as stores using their employees to pick out customers’ groceries or other items for sale. Customers would receive their purchases at their front door, or drive up to the curb by a retail store to wait for a store employee to put their purchases inside the car. Drone delivery by businesses also rose in popularity.

Online retailers like Amazon have now built trust among their customers, who feel comfortable using online services to purchase what they want. Do you have confidence in the competence and reliability of Amazon to deliver the high-quality product you’ve chosen? Your answer is probably “Yes.”

How Amazon Has Impacted Today’s Supply Chains

According to SmartSense, at-home customers consider “free shipping as the most important service when it comes to ecommerce,” especially during this pandemic. Being able to move online purchases to customers in hours and days, however, demands a significant amount of data processing. The need to quickly process big data has had a huge impact on warehouse and inventory management.

Amazon distribution centers are not located close to all of our households, so the speed of this data processing is remarkable. When retail data management originally began, it took days or weeks to upload customer orders and delivery information.

However, when you purchase a product today online with Amazon, your order tracking information is sent to your email inbox the same day, along with the expected delivery schedule. Amazon also uses a physical display that shows the complete supply chain with the hour of delivery to your home.

Amazon uses a well-coordinated data sharing and data exchange system between a warehouse and transportation. The company also utilizes technology such as artificial intelligence, autonomous delivery trucks and drone delivery. The lesson here for other retailers is that to create successful supply chains for 2021 and beyond, they will need to continually invest in computer and data processing technology.

How Amazon Affected Reverse Logistics

Amazon has also affected reverse logistics, which involve returning items to retailers. During the pandemic, some customers chose to order several sizes of products such as shoes or dresses. Later, those customers return any products that do not fit properly.

Reverse logistics management for supply chains underwent changes to handle the flow of returned goods. The inventory management of returned items also had to adapt to this type of shopping behavior by customers.

Reverse logistics also involves another category of products – fixing damaged items. This sector of reverse logistics involves data collection, product repair, and a supply chain that includes a warehouse, delivery vehicles, and the original manufacturer.

In the Amazon supply chain, this sector involves business intelligence, data management and transportation integration. It will continue to grow and improve to ensure on-time delivery of products to Amazon customers.

What Will Amazon Effect Do to Retailers in the Future?

Since 2017, the impact of the Amazon Effect has been reported as undeniable. During this pandemic, the impact of online retailers such as Amazon has been felt even more in the retail industry. The way customers shop online today is constantly changing as this pandemic continues into 2022.

Major retailers such as Walmart, Target and Lowe’s seem to be emulating the Amazon model. During the next few years, it may not be surprising to see a closer connection between Amazon and these big retail players.

Dr. Oliver Hedgepeth is a full-time professor in the School of Business, teaching transportation and logistics management. He was program director of three academic programs: Reverse Logistics Management, Transportation and Logistics Management, and Government Contracting. Dr. Hedgepeth was also Chair of the Logistics Department at the University of Alaska Anchorage. He was the founding Director of the Army’s Artificial Intelligence Center for Logistics from 1985 to 1990, Fort Lee, Virginia.

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