In the United States there are more than 125 thousand full-time Amazon employees and over 75 fulfillment centers, (Amazon, n.d.). Avery Hartmans, from the Business Insider, wrote an article called “15 fascinating facts your probably didn’t know about Amazon,” that discusses some amazing things Amazon has flourished from. Hartmans says, that Jeff Bezos, the founder, launched Amazon and they were only a book store. However, Bezos knew that he had to show innovation by turning it into an “everything store,” (Hartmans, 2018). In the beginning stages of Amazon, Hartmans explains that “Cadaver” and “Relentless” and says if you go to relentless.com, it’ll take you straight to amazon.com, (Hartmans, 2018).
When he finally chose Amazon as the stores name, he did it because “Amazon” is the largest river in the world. In my opinion, this makes complete sense when you look at the big picture of Amazon. I believe it is a big part of our world. Amazon’s first big Christmas sale was in 1998 and they were totally under staffed which is why these days they will never go under staffed again, (Hartmans, 2018). Amazon’s rival, eBay, was launched and Bezos tried to follow their lead with auctions, but it didn’t work for them, (Hartmans, 2018). That didn’t stop Amazon’s growth. There financial stability, competition, business strategy, and their total quality management will continue grow and improve because it seems that Amazon is always on step ahead.
Financial Summary
I believe that, people by now have noticed how successful Amazon has become. They’ve taken a huge part of our retail industry and have made it very convenient for their consumers to purchase just about anything they want from their PC’s, MacBook’s, iPhone, or Android devices. And as we all know we can compare prices when we are in the store’s and sometimes even purchase on Amazon. With this convenience in the industry it’s clear to see Amazon’s financials must be on rise. According to Nasdaq.com, there total gross revenue as of December 31st, 2017 is $177,866,000. With this said, they also have a total of $111, 934, 000 in costs only leaving them with $65,932,000 in total gross profits. The source also provides previous figures which shows a significant change from 2014 to 2017 where their total gross profit was only $26,236,000, (Nasdaq, 2018). It’s amazing to see them progress as fast as they are.
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Last year an Author by the name of Frank Chaparro wrote an article in the Business Insider discussing the future finance of Amazon. Chaparro explains that one of the board members of Wealthfront, Jason Kilar, contributed to the overall goal to help lead them out of just being a general book store. Chaparro goes on to explain further that Kilar believes in the future there might only be two or three companies with double digit market shares compared to our current five to six, (Chaparro, 2017). While this doesn’t say that Amazon will lead the market in the future but in my opinion, I believe Amazon will be up there in the top two or three.
Amazon must sustain its company with various expenses too which leads to another good piece of information from Nasdaq.com. On their income statement it shows Amazons various operation expenses like operating income, earnings before tax, income tax, and employment costs. They have an operating income of $4,106,000 and with the other various expenses they have a total earnings net income of over three million in 2017, (Nasdaq, 2018). With more brick and mortar companies closing it will be very interesting to see what Amazon’s total net income this year is.
According to theguardian.com two authors by the name of Rob Davies and Dominic Rushe discusses how Amazon becomes the world’s second company have a set value of $1 trillion. Davies and Rushe explain that on May 15th, 1997, Amazons stock share price was only $18. The company was only selling books and cd’s at the time and now they sell it all, (Rushe & Davies, 2018). As of September 4th, 2018, Amazons share rose to $2050 pushing them to have an end of day value of $995 billion, (Rushe & Davies, 2018). Amazon has been ranked so high that they were offered a $7 Billon dollar offer to build a second headquarters, (Rushe & Davies, 2018). So, with all this in mind, it’s easy to predict what our future will entail with Amazon. They have continued to rise over time and in my opinion, seems to continue a steady upward motion in our market for future to come.
Amazon’s top financial situation has given them the opportunity to buy out Whole Foods last year. The New York Times, has an article called, “Amazon to buy Whole Foods for $13.5 Billion,” by Nick Wingfield and Michael J. de la Merced and they enlighten their readers about Amazon’s plan to buy Whole Foods. Apparently, buying Whole Foods signifies a standing a war with Walmart, (Wingfield & J. de la Merced, 2017). If Walmart loses its grocery competitive edge, then they will have a long struggle with the future especially since they fell behind one the online selling game, (Wingfield & J. de la Merced, 2017). There are 460 Whole Foods stores in the United States, Britain and Canada, (Wingfield & J. de la Merced, 2017). There sales were $16 billion in 2016, (Wingfield & J. de la Merced, 2017). Whole Foods is best known for their organic foods, local meats and produce, (Wingfield & J. de la Merced, 2017).
Wingfield and J. de la Merced thinks because Walmart has 10 times the number of stores as whole foods Amazon’s idea of buying Whole Foods is not going to change Walmart’s and the Sam’s Club warehouse change since they have 18 percent of the grocery market, (Wingfield & J. de la Merced, 2017). In other words, Winfield and Merced are saying that Walmart still holds the competitive advantage when it comes to groceries so while that was a well thought out analytical plan for Amazon to overtake that market, it didn’t work as they planned. Gathering all the information though, you can see how Amazon’s financials allow them to come up with intuitive ideas to gain more access into today’s market. I believe there will be other ideas that Amazon has in the near future.
Competition
Growing up in late 19th century there was no greater feeling than going into the mall and seeing all the stores to choose from to get the best clothing or product. The entire mall would be filled with shoppers and stores sometimes had lines out the door around Christmas time. Shopping was so different back then. Now let’s jump to the future, if you go to a mall now they are empty, and I believe some are even shutting down. The online shopping market hit the consumers all so quickly leading brick and mortar companies to bankruptcy. In my opinion, there is a possibility for our future to be nothing but online shopping.
Michael Corkery an author in The New York Times, wrote an article called “Hard Lessons (Thanks, Amazon) Breathe New Life into Retail Stores,” that discusses the effects of online retail. Corkery says that the malls are “hollowed out”, just as I had mentioned above. He states that according to the Coresight Research Company, a retail analysis firm, nearly 5,700 brick and mortar stores have shut down in the United states according to the Coresight Research, (Corkery, 2018). This article was written on September 3rd of 2018 and as of that day already 4,480 brick and mortar stores have closed, (Corkery, 2018).
However, he makes a point that it might not be an end to all the in-store retail industries because a lot of them are adapting to the changing needs of the consumers, (Corkery, 2018). Some Nordstrom’s allow returns to a drop box without any human reaction, (Corkery, 2018). Walmart now has delivery for groceries and a booming garden center, (Corkery, 2018). Dollar general is soon to open 900 stores this year in areas where this isn’t many places to shop, (Corkery, 2018). With all this in mind, one could notice how Amazon has changed our shopping experiences and the impact it’s had on the retail industry.
According to an author by the name of Troy Segal on Investopedia.com discusses who is Amazons biggest competition. Segal says that amazon is divided into three different elements; electronics, media, and other merchandise, (Segal, 2018). He states their main competitors in the media segment are eBay, Netflix, Time Warner Cable, Apple with iTunes, and Google with its Play Store, (Segal, 2018). Segal explains that in the electronic and general merchandise segment there are several brick and mortar companies Amazon competes with, (Segal, 2018).
Just are few of them are; Best Buy, Family Dollar, Staples, Target, Walmart and more, (Segal, 2018). There main online competition is Alibaba Group, Overstock, and LightInTheBox Holding co., (Segal, 2018). Segal also mentions that as of July 16th, 2018, Amazon had a market capitalization of $885.22 Billion dollars, (Segal, 2018). Based on the above information, it’s clear to see that Amazon has quiet a collection of competitors and they will need to continue to adapt to the ongoing demands of the consumers if they want to stay in the top.
Business Strategy and Total Quality Management
Although just starting as a simple online bookstore, Amazon has adopted many different practices that result in financial gain for the organization. According to the article “Here’s how Amazon makes its money,” Amazon had 136 million dollars in sales as of October 2017. The article also provides an infographic which shows the breakdown of Amazon’s revenue streams. These places of revenue included: Amazon web services, such as their “Amazon Video” service, their Amazon Prime subscription service, and the ability for other businesses to sell their products on Amazon.com. Amazon’s third-party sales make up about 17% of their total revenue, and about a third of all their online sales, (Desjardins, 2017).
Another way that Amazon has been able to create business is through their “Business-to-business” sales. This means they are not simply selling to smaller customers, they are suppling brick and mortar stores with goods as well. Amazon logistics has the potential to become a leader in the shipping industry, (Desjardins, 2017).
In terms of staying competitive, Amazon has developed many strengths. At current they are the world’s leading online retailer which a recent evaluation of one trillion dollars. They have been able to accomplish this by maintaining cost leadership. They can do this because they have a sufficient number of warehouses and fulfilment centers. Because of this they are able reach a wider market than brick and mortar stores, and as a result they can sell their products at a lesser price because they do not have the retail stores to maintain, (Grundy, 2015). Another strength Amazon has is its larger support of third party sellers.
Because Amazon carries products from their potential competitors, they can maintain price control by giving a comparative advantage to other sellers. And it a symbiotic relationship, the third-party sellers benefit from Amazon’s high online traffic. One last strength to address from Amazon is their logistics department. According to Eytan Buchman, Amazon’s trucking fleet has been expanding rapidly since its beginning in 2005. Not to mention their Amazon air fleet which now contains thirty-two Boeing 747’s which is almost as large as the United States 15th largest passenger fleet. With a planned Kentucky airport in development, and growing opportunities for people in the logistics field with over 17000 full-time logistic jobs being offered on the Amazon Website, (Buchman, 2018).
A potential weakness to Amazon comes from arguably one of their strongest gimmicks. This being their free two-day shipping with their Amazon Prime account. The weakness comes from the rise of transportation costs cutting into their profit margins. A study from the US department of agriculture has determine that “transportation represents 3.3 cents of every dollar spent.” Meaning that transportation prices have increased across all US truck. Meaning Amazon is more than likely experiencing at least a 3.3 percent loss on flexible expenses on their Prime accounts.
A product that Amazon takes pride in, (Johnson & Prentice, 2018). Another weakness that Amazon has, is the potential long-term ramifications that can be suffered due to their over negative attitudes their workforce possesses. In an article entitled “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace.” Many people were cited in saying that Amazon managers are known to tear down their workers ideas. One worker Bo Olson was quoted by saying “You walk out of a conference room and you’ll see a grown man covering his face.” This negative atmosphere has the potential to create a lack of trust between managers and subordinates. Which ultimately results in a lack of new ideas being created to further grow the overall company, (Kantor & Streitfeld, 2015).
An opportunity that Amazon could take advantage of is to create an Amazon line of products as oppose to just sending out third-party products. In an article, by Mark Hamstra, Amazon’s main competitor Wal-Mart has begun speaking of the need for private label brands such as their “Great Value” brand bringing more success coming forward. This also can help compete with worldwide markets such as discount stores Aldi and Lidl in the United Kingdom, (Hamstra, 2017). By creating a private label, Amazon could penetrate an untapped market share. There is high chance that many people will follow the Amazon brand name into many brick and mortar stores as well as the Amazon marketplace.
There are also potential weaknesses that Amazon faces. The most prevalent is the increased concerned with online security and identity theft. More recently there have been e-mails sent out from scammers disguising themselves as Amazon representatives. The intention is to gather information from unknowing victims. It is Amazon’s responsibility to protect their customers to ensure the public’s trust in Amazon. However, there is the possibility of a larger threat. In a 2016 article, Eric Springer, a former Amazon developer revealed Amazon’s customer service accident gave out customer information cyber criminals. Including his credit card number and address, (Mohan, 2016). Another threat that Amazon faces, is the possibility that it is too larger. This means that they have the potential to miss smaller market places, while focuses on a larger picture. This means other companies can steal that market share and begin to compete with Amazon. An example of this is Shopify, which states that rather than price, they wish to compete with Amazon based on quality.
One of the ways Amazon has achieved Total Quality Management it that it has an almost obsessive approach to customer focus. Within a new hire’s first 30 minutes of being inside a facility, they are told to observe the principles as they encircle the walls of the break room. Meaning they are directed to have a customer focus from day one.
According to the article “Learn from Amazon’s Leadership Principles” customer obsession is the first of these principles. The author further states “Leaders start with the customer and work backward.” This is an important ideal in terms of the TQM culture, because without the customer there is no purpose for Amazon to even exist. Amazon CEO Jeff Bezos was quoted in an interview with Financial Review saying “[customer focus] is even more important online than in the physical world,” (Bharti, 2015). This was in no small part that an online customer has the potential to reach more people with their reviews of the products and services that Amazon offers. So, by having a larger focus on customer service Amazon has been able to grow their customer base from 600,000 people in June 1997, to hundreds of millions of people worldwide, (Hewett, 2017).
However, it is not just through customer focus that Amazon has been able to adopt the practices of Total Quality Management. They have been able to make great strides around continuous improvement. More importantly, they adopted the principles of lean management. According to the article “When Toyota met e-commerce: Lean at Amazon,” Jeff Bezos very quickly learned that the customer was not going to want to pay for waste. This was not just in the form of defective products, but also in the form of delivery costs. With that that in mind the first ideas of lean management were brought to the attention of deliveries. Going from the customer focus, the first thing was to choose the correct method of delivery to ensure the package would be delivered on time. The second step was to choose less expensive methods. That could potential remove the waste of addition shipping costs. However, it was determined this could only be done if it meant not sacrificing customer satisfaction, (Onetto, 2014).
Another way Amazon adopted lean management was in the implementation of the Andon system. This is a fail-safe system to ensure that defective products did not make it do the consumer. The steps of the process would entail: someone from the fulfilment center would discover a defective item. The Andon Cord was pulled which would then stop the lines entirely, giving workers a chance to remove all defective products. Then a team of technical specialist called “problem solvers” would then catalog and attempt to resolve the problem. If the defects were a result of Amazon’s error. These errors would be fixed and then put back on the line. If the defects were a result of the supplier, the goods would be sent back, and the supplier would be warned. According to Onetto, there is a three-strike policy between Amazon and their supplier. Which upon the third strike, the relationship would be discontinued, (Onetto, 2014). This meant that principles of “produce quality the first time” and “Improve continuously” were enforced and helped to add to the Amazon’s total quality culture.
One final way that Amazon had succeed in the removal of “waste” as observed by Robert Morgan, a former Amazon employee. Was the concept of “Area Readiness” this roughly translated to “A place for everything and everything in its place.” This meant that every item that an employee would need to start their work day was made available to them at the start of their shift, and the worker was responsible for not only having their items available but making sure they next shift had their available as well. Places for items such as waste baskets and ergonomic mats were marked off with blue tape. This area was specially designed to not only be the safe area for a person to perform their tasks. But also, to eliminate time needed to perform smaller, yet repetitive task such as throwing cardboard boxes away. These smaller tasks being performed correctly meant more time being saved and more products being processed and sent to other Amazon fulfilment centers. Helping them to stay competitive in their marketplace and maintain their market share.
