Amazon is planning to launch a premium service that dispatches assemblers into a customer’s home when they want someone to put together furniture or install appliances.
Sure, this plan appears to be aimed at competing with similar services offered by Wayfair and other larger furniture retailers. But at a higher level, there’s a larger trend at play that could alter the coastline of the furniture and mattress industry.
For years, Amazon has been turning cost centers into profit driversand a furniture assembly program could be another platform play where they develop a service and get so good at it they’re able to sell it to others—and turn that cost center (i.e. furniture assembly) into a profit driver.
Look at Amazon fulfillment—all the warehousing and picking and packing is a huge expense. Well, to cut costs and drive profits, they took all their top-notch warehousing and technology and leased it to other companies who wanted to outsource that headache. So instead of running a warehouse that costs Amazon a bunch of money, they’ve developed a business they use for themselves, and it’s one that makes them money.
And what about Amazon Web Services. They had to have a mountain of computer technology to power Amazon, and it was so advanced and reliable that others wanted it, so Amazon sold it to them as a service.
Galloway notes that in Q2 2020 Amazon generated $89 billion in revenue—greater than the department of education, or enough to end malaria worldwide. And Amazon Marketplace, that handy everything-store where people buy with a swipe, only accounts for 20% of the company’s overall revenue.
He also explains that Amazon “enters high-friction, low-margin businesses as a means of differentiating low-friction, high-margin businesses.”
Amazon destroyed some very iconic businesses. Remember Borders? How about Circuit City, Tower Records, or how they drove down the stock price of Zappos so low they ended up buying them for a song?
Amazon is big, strategic in their approach, and they have a large stack of chips they use to push people out of the pot with their all-in bets. What’s to keep Amazon from expanding into a more dominant position in the home categories? Service.
Furniture and mattress returns are costly. Amazon is the largest seller of online mattresses and they’ve likely experienced the high costs associated with returning these bulky items. One way to solve that problem is to send Amazon assemblers into your home, have them put together the item to guarantee it works the way it was intended—and ensure the customer doesn’t want to send it back.
But if the assemblers get into the person’s home and they hate the item, they can take it away right then instead of coordinating the logistics of a pick-up and take away.
Also, any time someone is in your home, it’s a chance for them to sell you something else. But the gangster move will be developing a delivery and assembly network that Amazon can sell to other companies that want to use the service. And once again, a cost center becomes a profit driver.
How to Compete
So how can independent retailers all over the U.S. protect themselves from becoming a victim of Amazon?
Connect to the consumers in your market in a meaningful way. Create awesome experiences your customers will rave about. Humanize your business and decide to do things differently to create separation from your competitors. These strategies are covered in great detail in the book “Come Back To Bed”, written by the founders of The FAM, so pick one up—or better yet, subscribe to The FAM newsletter and get the audio version for free.
Things are moving quickly in our world. We have to be able to react with speed. Amazon will get their market share but they don’t have to take yours, and they won’t if you are willing to change.
But you don’t have to change. Because survival isn’t mandatory.
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