'The Amazon Flywheel Is Spinning Faster'

Rapid growth threatens category after category

Author: Andria Cheng

April 10, 2017

Amazon’s disruptive effect on the retail sector, especially when it comes to such categories as books, toys and electronics, has been very well documented, but a new study offers a strong signal that no retailers are safe from Amazon’s tentacles.

Here’s one data point from the study: Amazon sales of bulky Sterilite storage boxes last year jumped 48%, according to One Click Retail, an ecommerce sales analytics firm whose clients include Procter & Gamble, Nestle, Kellogg, Hamilton Beach, Calvin Klein and HP.

One Click said the Seattle online giant’s housewares growth rate is 3.5 times the category average.

One Click estimated that Amazon’s total sales of housewares increased 33% to about $7 billion last year, led by demand for items like the iRobot Roomba vacuum cleaner, Brother Sewing Machine and Frigidaire Dehumidifier. It said the Seattle online giant’s category growth rate is 3.5 times the U.S. industry category growth rate, and it estimated that Amazon’s share of the market is 8.5%.

That’s only one area. One Click’s data also showed that in health and personal care category, Amazon saw a 35% jump in sales last year to $4.7 billion, which One Click said is nearly five times the total category growth rate. While Amazon’s share of that category is still well under 2% according to One Click data, its much faster growth rate will present growing challenges for both retailers and even brand manufacturers: Amazon’s laundry detergent sales, for instance, more than doubled, driven by the private label Presto! liquid detergent that Amazon introduced last year.

What these data points reveal is not simply the fact that consumers, led by millennials, are increasingly comfortable buying things online, or that Amazon is growing fast in these categories from a relatively low market penetration. It’s about the threat Amazon poses even to parts of the retail market that once might have been thought to be safe from encroachment. And for brands that may still be reluctant to sell on Amazon, the study is a clear sign that they can no longer ignore it as part of their retail strategy.

The market has “underestimated the impact Amazon will have in the next three to five years,” said Nathan Rigby, VP of sales and marketing at One Click, in an interview. “As Amazon adds more brands that are well known, it’s going to gain more traction. The Amazon flywheel is spinning faster and faster, and even the likes of Walmart and (Walmart-owned) Jet.com can’t keep up. It’s starting to reshape how consumers shop….It’s going to reshape the brick-and-mortar landscape and continue to transform brand manufacturers. If a brand doesn’t have an Amazon strategy, they are bound for failure.”

In another worry for brand manufacturers, Amazon (and increased online sales overall) has democratized the consumer products space, meaning that traditionally well-known brands can't simply rest on their laurels: For instance, the No. 1 selling item in kitchen products on Amazon is not from a familiar brand: It’s the Instant Pot Pressure Cooker, Rigby said.

Amazon Prime, which gives members free two-day shipping and many other perks (the latest includes Thursday night NFL football game streaming) is a key part of the company’s flywheel effect. The company last year added 73% more items to over 50 million products that qualify for Prime shipping program, CEO Jeff Bezos said in a statement in February.

Amazon doesn’t disclose the size of its Prime membership, but in its most recent annual filing this year, it said retail subscription services revenue, which includes annual and monthly fees generated from Prime, more than doubled to $6.4 billion in 2016 from $2.76 billion in 2014. Cowen & Co. in January estimated US Prime membership increased 23% to about 50 million based on a December survey, adding Prime members represented 57% of total Amazon purchases at the time, up from 46% a year earlier.

The company’s growing third-party Marketplace sellers is another sign of Amazon’s increasing penetration across categories: 100,000 third-party brands generated over $100,000 in sales each last year, up from 70,000 a year earlier, said Peter Faricy, VP of the Amazon Marketplace, said at Shoptalk conference in Las Vegas last month.

“Brands tell us they want access to Amazon customers, and access to over 300 million active paid customer accounts,” he said, adding more brands are opting for direct-to-consumer approach via Amazon.

In another dramatic contrast, One Click’s data showed Amazon’s 2016 beauty sales rose 47% to 2.5 billion, compared to a 2% industry growth. Interestingly, while industrywide category growth is driven by demand for so-called “prestige,” or higher end beauty products, results at Amazon paint a different picture partly because many top premium and luxury brands don’t sell on Amazon, according to One Click.

Cosmetics so far has been a relatively shielded online category in part because consumers like to try on the products before buying. A Market Force Information survey found that just 5% of cosmetics buyers listed “online” as their primary shopping channel.

But that hasn’t held back growth at Amazon as much as might be expected. It turns out men are doing the heavy lifting in this department: men’s products, from Braun shavers to Rogaine foam, are a key driver in beauty sales on Amazon, One Click data showed.