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DIGITAL MIGRATION 2 $40 Billion of Retail Sales Moved Online in 2014 3.

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Presentation on theme: "DIGITAL MIGRATION 2 $40 Billion of Retail Sales Moved Online in 2014 3."— Presentation transcript:



3 $40 Billion of Retail Sales Moved Online in 2014 3

4 eCommerce Outperformance Gap Widening vs. B&M Retail 4

5 Harsh weather? Consumer shops – just not in stores 5

6 Amazon Gaining Scale/Muscle Full 100 bps share gain since 2007 (~$50b) 6

7 Walmart Share Slipping 7

8 Amazon Share – Digging Deeper Revenue effects of 3P sales actually understate Amazon’s size. – ~40% of unit sales on Amazon are third party – Amazon only recognizes 8-15% of revenue from these sales Amazon 2013 reported revenue - $74.5B ($60.9B of product revenue) – ~$10.8B of Retail Service Revenue likely touched another ~$86B of product revenue 8 Source: Company Reports; CRC Estimates

9 Amazon Share – Digging Deeper What it means: 2013 – Amazon directly involved in ~$150B of purchases globally 2014 – That number likely around ~$180B ~60% of Amazon revenues come from North America 9 Source: Company Reports; CRC Estimates

10 Other eCommerce Factors Credit Cards on file: Apple leads the way at ~800-900 million Amazon ~250 million PayPal ~150 million 10 Source: Company Reports; BI Intelligence

11 2014.COM BENCHMARK 11

12 Key Conclusions eCommerce mix up 1 point vs. LY (from 6% to 7%) 3-year target expected to move 10 points higher (17%) Long-term ceiling potential now 25% (vs. 21% LY) Total 2014 eCommerce growth = +28% (6 categories) Total 2014 Amazon growth = +51% (6 categories) Amazon Net Sales vs. Plan = +22% above plan Amazon current eCommerce share = 32% Digital Marketing = 17% of spend today vs. 8% in 2011 – Moving 10 points higher to 27% over next 3 years (CPG 40%) 12 Source: CRC Supplier Survey

13 Average Online Growth Core 6 categories +28% vs. 18% industry-wide 13 Source: CRC 2014 eCommerce Benchmarking Study

14 Average Online Growth Auto/Home Improvement +40% 14 Source: CRC 2014 eCommerce Benchmarking Study

15 eCommerce Penetration 7% today to 17% in 3 years to 25% LT 15 Source: CRC 2014 eCommerce Benchmarking Study

16 2014 eCommerce Mix By Category 16 Source: CRC 2014 eCommerce Benchmarking Study

17 eCommerce Mix by Category TODAY 17 Source: CRC 2014 eCommerce Benchmarking Study

18 eCommerce Mix by Category IN 3 YEARS 18 Source: CRC 2014 eCommerce Benchmarking Study

19 eCommerce Mix by Category LONG-TERM POTENTIAL 19 Source: CRC 2014 eCommerce Benchmarking Study


21 Amazon Supplier Survey Average Investment Levels/Growth “All-in” average trade funding = 10.5% – Largest suppliers nearly 13% 2014 trade spend up 1.7 points from 2013 – 2013 also increased 1.5 points vs. 2012 Average Amazon Media Group spend = $330k – Translates into average 2-3% of Amazon sales – More companies reaching into 5-10% range 21

22 22 Source: CRC Amazon Survey Wide Range for Supplier Funding Weighted Average = 10.5%

23 23 Source: CRC Amazon Survey Supplier Funding Up Significantly Weighted Average = 1.7 point increase vs. LY

24 2014 Amazon Growth Core 6 categories +50% vs. 25% Total Amazon NA 24 Source: CRC 2014 eCommerce Benchmarking Study

25 2014 Amazon Sales vs. Plan Net 22% above plan across all categories 25 Source: CRC 2014 eCommerce Benchmarking Study

26 Amazon eCommerce Share 26 Source: CRC 2014 eCommerce Benchmarking Study


28 More Customized Marketing Vehicles 28

29 Higher Ticket on AMG (Amazon Media Group) 29 Source: CRC Amazon Survey

30 More Customized Marketing Vehicles 30 Tailored investment; Higher cost better return. Coupons to Amazon Mom customer (higher cost-per-click, better target) Pushing people away from Daily Deals and into Vendor Powered Coupons (VPC)

31 Holiday Promos/Inventory Earlier and more aggressive – How will Amazon react? Inventory investment this year likely narrower and deeper Pushing more warehousing/fulfillment onto suppliers. Capacity issue likely mean more 3P and FBA 31

32 Holiday Promos/Inventory Other incremental steps: Out-of-stocks an issue last year – Amazon wants suppliers to hold ‘locker stock’ this year Bringing inventory in earlier (October vs. November) – Want a 5-10% discount for doing so Pressure on suppliers to reduce case-packs – Reduce shipping costs and burden on FC’s 32

33 Margin Emphasis Areas of Most Significant Change Zappo’s now entirely MSRP More selective on inventory Margin ‘matters now’ All discounted items being moved to 6pm The #1 headwind is growth of ‘CRAP’ items Incremental steps in last three months Punting entire lines to 3P All about Net PPM 33

34 Margin Emphasis Areas of Most Significant Change Growth categories Largest opportunities Amazon identifies are: industrial, apparel/footwear, home improvement, automotive, CPG, home. For the first time hearing commentary from company that profit > selection 34

35 Amazon Supply Hearing company will have Third Party (3P) functionality in 2015 – Recruiting dealers to be 3P sellers more actively Likely bury AmazonSupply within – Most of purchases not coming through supply Seeing a lift recently as company links consumer SKU’s with B2B. 35

36 Amazon Supply Linking product ASIN’s (SKU’s) a critical step Example: 50-gallon Trash Drum = Consumer Purchase – But 24 50-gallon trash drums = Commercial Purchase Linking those products increases the amount of reviews on file – Helps with search, glance views, and conversion 36

37 Why Amazon Fresh and Pantry Matter Even if you don’t sell consumables They are selling your product anyhow: 37

38 Why Amazon Fresh and Pantry Matter Even if you don’t sell consumables Same day-delivery Rapid expansion plans (10-12 markets by 2015) Pantry more cost efficient 38

39 Why Amazon Fresh and Pantry Matter Even if you don’t sell consumables 39

40 Why Amazon Fresh and Pantry Matter Even if you don’t sell consumables 40


42 Sales are not the only thing migrating to eCommerce Consumer-centric elements of Amazon/eCommerce have peripheral benefits SALES  REVIEWS  DATA  EHANCED INSIGHTS  MORE EFFECTIVE MARKETING….And repeat 42

43 “EASY” Ways to Win Reviews - Don’t just be a bystander Search – Weigh the ‘intent to buy’ options and investment Mobile Growth Amazon – AMG and AMS 43

44 Reviews Brand feedback helps….A LOT! – 187% increase in sales when brands provided helpful feedback on reviews (source: Bazaar Voice) Bad Reviews are an opportunity not a liability – Provides opportunity for feedback – No one trusts perfect reviews 44

45 Search Search with intent to buy 45 Source: ChannelAdvisor

46 Mobile Browsing Nearly doubled in the past 12 mos. 46 Source: StatCounter, 5/14.

47 Mobile Browsing US actually lagging global rates 47 Source: StatCounter, 5/14.

48 Mobile Browsing App vs. Browser Top online retailers (Amazon, eBay) generate about 71% of mobile traffic from apps vs. browser Traditional retailers (Macy’s, Home Depot, Best Buy) closer to ~80% browser 48 Source: Comscore

49 Amazon Advantages Most searches start with non-branded terms Structural advantages for getting there early – Algorithmic selling – Subscribe and Save 49

50 Amazon Advantages 50 Source: StatCounter, 5/14.

51 Amazon Advantages More than just a website – 40+ million connected devices (Tablets, eReaders, Mobile Phones) – Mobile apps (Amazon, IMDB) – Estimates: 90 million total unique visitors, almost 30% incremental reach beyond standard PC/desktop search 51 Source: comscore/Amazon

52 Ad Prices Moving Higher 52 Source: CRC 2014 eCommerce Benchmarking Study

53 Digital Marketing Spend 53 Source: CRC 2014 eCommerce Benchmarking Study

54 Success Stories More measurable lift around key events – holiday, back-to-school, mothers/fathers day) International use – Helps brand awareness in under-penetrated markets 54

55 Success Stories Flexibility – Changing on the fly not typically an option in other campaigns. Often counts towards Net PPM – Helps brand relationship and level of attractiveness for Amazon 55


57 Third Party (3P) Pricing is a mess Amazon isn’t the problem they just expose the problem Most manufacturers are running on dated distribution models Inconsistencies/inefficiencies exposed on 3P platform 57

58 Third Party (3P) It’s not going anywhere 58

59 3P – Best Practices Tightening distribution and limiting partners is the best way to eliminate pricing issues Some have found success setting their own company/brand up as a 3P or Fulfillment by Amazon (FBA) provider. Partner with a trusted 3P; eliminate others 59

60 3P – Amazon Will Help With: Counterfeit product – But supplier needs to the leg-work Anything that helps them increase the buy box % (especially in a category of emphasis) 60

61 3P – Amazon Will NOT Help With: Policing irrational pricing from 3P’s Eliminating non-approved sellers (most of the time) 61

62 3P – New Insights Becoming mission critical for more suppliers: Alibaba entrance into US likely magnifies lingering problems Counterfeit and 3P misrepresentation is on the rise. Amazon will crack down on violators that suppliers identify. 62

63 Amazon never orders enough new product What to do? Always the case because so data-driven Set up 3P/FBA offer with amount of inventory you think they will move When out of stock on Amazon site that purchase will shift to your offering 63

64 Amazon doesn’t honor our MAP Policy This probably isn’t going to change If Amazon finds a lower price on your item that invalidates your MAP policy in their eyes 64


66 Our Actionable Conclusions The migration of marketing muscle to eCommerce is a larger secret than the shift of sales High ROI vehicles still exist (not totally efficient) Digital marketing dollars lagging consumption of digital content 66

67 Our Actionable Conclusions Amazon Media Group: Should not just be part of the Amazon P&L Holistic benefits (6x effect); not just an Amazon sales lift Only getting closer to the consumer – Relevance as a search starting point – FC network – Mix of products 67

68 Our Actionable Conclusions Holiday shaping up well to move inventory through Amazon/eCommerce: 2013 – they paid freight to get product at the 11 th hour Know they are running leaner on lower-turn SKU’s this holiday 68

69 Our Actionable Conclusions Amazon/eCommerce Share spikes: Unfavorable Weather 69

70 Our Actionable Conclusions Amazon/eCommerce Share spikes: The last several holidays 70

71 APPENDIX Other Disclosures: I, Chris Hodson certify that the views expressed in the research report(s) accurately reflect my personal views about the subject security(s). Further I certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report(s). The analysts responsible for the preparation of this report have no ownership stake in this company. Cleveland Research Company provides no investment banking services of any type on this or any company. Proprietary research and Information contained herein which forms the basis for findings or opinions expressed by Cleveland Research Company may be used by Cleveland Research for other purposes in the course of compensated consulting and other services rendered to third parties. The information transmitted is intended only for the person or entity to which it is addressed. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. Member FINRA/SIPC 71

72 Antitrust Disclosure Please remember the antitrust laws apply to CRC and all of our activities. CRC has an antitrust policy and expects all participants in this meeting to adhere to that policy and the antitrust laws. Compliance with letter and spirit of state and federal antitrust laws is an important goal of CRC and essential to maintaining its reputation for the highest standards of ethical conduct. Please do not discuss your company’s pricing information, including discounts, credit terms, or specific terms of sale. Please do not discuss your company’s specific customer or marketing information, sales territories, or similar information, and do not discuss allocating or sharing customers, or refusing to do business with particular customers or other companies. What a company does individually is its own business. If during the course of your attendance at this meeting, you find yourself in any conversation with someone about these subjects, please stop the conversation, or if necessary leave the conversation and let one of the CRC staff members know. If you have questions about what is permitted or not permitted, please ask a CRC staff member for assistance. 72

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