This assignment is a case analysis paper that measures the analytical thinking and communication related to writing skills of the person writing the paper.
The assignment will be evaluated by the Critical Thinking Rubric found in the attached files.
The assignment should be 12 pages in APA format, double spaced, in Times New Roman 12-point font, and with a 1” margin. Please include a title page and a reference page (not part of the 12 pages).
The case is called Amazon.Com Evolving into OfflineRetail
and is attached in the files.
Amazon.Com: Evolving Into Offline Retail W18088 AMAZON.COM: EVOLVING INTO OFFLINE RETAIL1 Won-Yong Oh wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e)
[email protected]; www.iveycases.com. Copyright © 2018, Ivey Business School Foundation Version: 2018-02-15 In May 2017, Amazon.com, Inc. (Amazon) released its report on its fourth-quarter earnings. Although the company missed its target revenue of US$44.68 billion,2 it surpassed analysts’ expectations for its fourth- quarter profits. However, not all shareholders were satisfied, as Amazon’s stock dropped 4.5 per cent just hours after the report’s release. The results were in some ways disappointing because they did not reflect the company’s claims that Amazon had enjoyed a record holiday season in 2016.3 Amazon had always invested heavily in expanding in the United States through new projects, from establishing Amazon Prime Now (Prime Now) to setting up brick-and-mortar (B&M) Amazon Books and Amazon Go locations.4 By April 2017, a rumour suggested that Amazon would acquire natural and organic foods supermarket Whole Foods Market Inc. (Whole Foods) in the near future.5 Entering the B&M industry was unfamiliar territory for Amazon, but also a promising opportunity, as the B&M industry accounted for approximately $4 trillion and 90 per cent of retail sales in the United States.6 Could Amazon be as successful in offline retail markets as it had been in e-commerce? How could Amazon differentiate itself in the B&M retail industry? COMPANY OVERVIEW Amazon was a publicly traded company started by Jeff Bezos (who also served as Amazon’s chief executive officer) in 1994, and opened as “Earth’s biggest bookstore” in July 1995. Bezos had quit his Wall Street job to start an online business that would allow customers to purchase items on the Internet and have those items delivered to their homes. He had seized the opportunity when he saw that Internet usage grew 2,300 per cent in the spring of 1994. Bezos started by selling books because they were low cost and generated universal demand. He then expanded into other industries over the subsequent two decades.7 Since Amazon went public in 1998, Bezos’s consistent message had been to “build culture, take risk, and focus on the long term.”8 Further, Amazon was guided by four principles: an obsession with the customer rather than competitors; a passion for invention; a commitment to operational excellence; and long-term thinking.9 By 2016, Amazon was a major e-commerce company that also operated in multiple other industries such as books, films, and web services with various subsidiaries. Its website was well known as the most popular destination for product searches, surpassing all other search engines and retailers. As a result, the For the exclusive use of S. Patel, 2018. This document is authorized for use only by Shivani Patel in MGMT 495 Fall 2018 taught by James W. Cooper, University of Illinois at Chicago from Aug 2018 to Dec 2018. http:US$44.68 http:Amazon.com http:www.iveycases.com mailto:
[email protected] http:AMAZON.COM Growing Segment: Amazon Web Services Enhancing the Shopping Experience: Amazon Prime and Prime Now Page 2 9B18M026 majority of U.S. consumers perceived Amazon as the dominant player in e-commerce (see Exhibit 1). Nine out of 10 consumers checked the Amazon website even if they found a product they liked while shopping on another retailer’s site.10 In 2012, Bezos had spoken about the possibility of Amazon’s expansion into B&M stores, saying, “We would love to, but only if we can have a truly differentiated idea. . . . What would we do that would be different? How would it be better? We don’t want to do things because we can do them. We . . . don’t want to be redundant.”11 Three years later, Amazon returned to its roots by opening its first bookstore in Seattle, Washington.12 It also laid the foundation for an innovative new concept of how to shop through its first Amazon Go location. As of February 2017, the company had over 341,000 employees13 and reported revenues of over $135 billion (see Exhibit 2).14 Amazon’s future plans included further B&M expansions of Amazon Books, Amazon Go, and AmazonFresh. In addition, representatives from Amazon and from supermarket chain Whole Foods met in Seattle on April 30, 2017. Although the companies signed a non-disclosure agreement (because other companies were also interested in acquiring Whole Foods), the subject of the meeting was clearly a potential acquisition.15 Amazon operated under three business segments created in 2006: North America, International, and Amazon Web Services (AWS), a cloud computing platform and subsidiary of Amazon (see Exhibit 3). AWS resulted from Bezos listening to customers looking for solutions to problems with expensive applications and open source products. In this way, AWS was an outcome of the company’s customer-centric principle.16 In 2016, AWS produced $12.2 billion in revenue.17 With $926 million in operating profits, comprising 31.3 per cent of all AWS net sales (in comparison with Amazon’s operating margin of 5 per cent), AWS was Amazon’s main profit driver in the fourth quarter of 2016.18 AWS was still growing, and offered various services including virtual servers, storage, database, migration, networking, security, messaging services, artificial intelligence, development tools and application services.19 Bezos confirmed, “AWS is a $5 billion business and still growing fast.” Similarly, Dan Kurnos, an analyst with The Benchmark Company, noted that AWS was “surprisingly more profitable than forecast.”20 A key benefit of AWS was that costs were largely variable, as they were scaled to a customer’s business, thereby helping that customer avoid large capital expenses. Moreover, cloud computing reduced the processing time from weeks or months to minutes through autonomic computing, which reduced labour costs and the possibility of human errors. Hence, AWS was a reliable, low-cost, agile, open, flexible, and secure platform that provided services to businesses in 190 countries.21 Amazon Prime consisted of two features, Prime and Prime Now. Prime was a paid membership program that gave customers advantages such as free, cheaper, or faster shipping; savings on products and services; access to Amazon’s entertainment subsidiaries; and other bonuses (e.g., Amazon Elements and Membership Sharing).22 Prime Now members could receive free two-hour delivery of thousands of Amazon items. Another area of Prime Now was its restaurant delivery service, Amazon Restaurants (which offered food delivery within one hour to Prime members if their order met a minimum purchase amount). To offer these services, Amazon partnered with local stores, restaurants, and couriers to provide For the exclusive use of S. Patel, 2018. This document is authorized for use only by Shivani Patel in MGMT 495 Fall 2018 taught by James W. Cooper, University of Illinois at Chicago from Aug 2018 to Dec 2018. http:Sharing).22 http:countries.21 http:services.19 http:revenue.17 http:principle.16 http:acquisition.15 http:Washington.12 ONLINE RETAILING INDUSTRY Page 3 9B18M026 more than 25,000 items across 25 categories, from basic essentials to electronics and more. The deliveries were available seven days a week from early morning to late evening.23 Bezos stated that Amazon Prime was the “best bargain in the history of shopping” and that it was part of Amazon’s long-term plan to strengthen the company’s hold on customers.24 In exchange for loyalty, Amazon was willing to sacrifice profits from shipping and services. Prime was one of Amazon’s initiatives to help change customers’ expectations about retail.25 Prime members used Amazon as their primary source for researching products, increasing overall usage of Amazon from 44 per cent in 2015 to 55 per cent in 2016, while other search engines decreased from 34 per