Industry Obstacles Are Amazon’s Tailwind: How the Retail Giant Keeps Growing

But they all work to Amazon’s advantage.

E-commerce retail growth: good for Amazon

A recent Financial Times post summed up the state of the economy perfectly: “The good news: The global economy is recovering. The bad news: not so much.” This also wraps up retail e-commerce with a single-digit growth forecast in 2024, after two years of decline post-Covid.

And while the return to growth is of course good news at less than 5%, there isn’t much organic growth in sight for UK retailers and brands. Consequence? Competition for buyers is heating up, and brands are increasingly turning to retail media as assortment and targeting sophistication evolve with demand.

According to Emarketer, in the UK, growth in retail media advertising spend will outpace all other media investment; expected to accelerate further, to almost 16% of digital ad spend by 2027.

This all works to Amazon’s advantage. Accounting for 71.5% of retail media spend in the UK, 78% in Germany and 75% in the US, Amazon stands to gain the most from the retail media boom. The company’s advertising solution has evolved significantly and now offers a truly comprehensive marketing funnel with the recently added Prime Video Ads streaming offering. Given that Amazon’s ad net sales are now approaching 10% (already at 8.2% as of its first-quarter earnings release) and its growth is outpacing everything else in the company’s business, this is a significant tailwind.

Inflation: Good for Amazon

Inflation is also improving, but not as much as expected. The US Federal Reserve, the European Central Bank and the Bank of England still missed their targets. In response, markets are now betting on less than half the expected rate cuts in 2024 than at the start of the year (though the Bank of England continues to say further rate cuts are “possible” this summer). All this reduces consumer spending and maintains cost pressures on manufacturers and all retail supply chains.

However, Amazon is uniquely positioned to benefit disproportionately compared to its competitor operating in an inflationary environment. Why? Firstly, because of the scale. Secondly, thanks to diversified revenue streams (AWS, advertising, retail, 3P).

With more than 1.5 million employees worldwide and an extensive owned and operated logistics network, Amazon simply has more control over its destiny than other companies. This is evidenced by impressive operating profits in the last two quarterly reports, with operating margin for 2023 increasing to 6.4% compared to 2.4% in 2022. CEO Andy Jassy highlighted improvements in “costs” in his latest letter to shareholders “handling”. helped by the reduction of over 27,000 jobs and the regionalization of storage methods, which significantly reduced travel costs.

Beyond just cost cutting, Amazon continues to make long-term investments, including a $2.75 billion strategic investment in artificial intelligence company Anthropic and $9 billion in cloud infrastructure in Singapore.

Phasing out third-party cookies: good for Amazon

As Google phases out third-party cookies on Chrome this year, retailers, publishers and advertisers who rely on cookies for targeted advertising and customer information are switching to alternatives.

There is no silver bullet, which causes nervousness and uncertainty about future marketing and analytical activities. For example, programmatic buyers who have historically relied on cookies to expand reach and engage their target audiences will need new solutions that are compliant with privacy standards while ensuring performance. Not easy.

But for Amazon, a significantly improved DSP and relatively simple data storage solution in Amazon Marketing Cloud (AMC) means the giant is once again extremely well placed to benefit from broader industry challenges. Last year, The Forrester Wave magazine recognized Amazon’s DSP as a leading omnichannel solution, alongside Trade Desk and Google. This, combined with AMC’s ability to integrate with Amazon’s massive customer data, means Amazon can provide advertisers with confidence in their investment decisions, just when confidence in those decisions is decreasing everywhere else.

Moreover, advertisers can combine buyer data with their own first-party data to model unique audience segments. They integrate directly with Amazon’s DSP and can be targeted to all available inventory, even Prime Video inventory. Our customers find that AMC audiences are 2-4 times larger than standard DSP audiences.

Defying gravity

In his latest letter to shareholders, Jassy refers to a basic science he calls “not fighting gravity,” referring to Amazon’s ability to continually innovate in line with consumer and technology trends rather than fighting inevitable change.

Although a recent study by Kantar shows that while Amazon is the media brand of choice for consumers for the second year in a row, it does not yet appear in the top five among marketers. Since the tailwind is likely to become stronger, it may be best not to fight gravity in the Amazon.

For a deeper analysis of the retail heroes and villains of 2024, visit our website center of the week of recollection.