The SWOT analysis of Amazon shows that this global eCommerce player aims to fuel its growth through acquisitions and by transforming the retail experience.
Amazon was launched in 1994 by president and CEO Jeff Bezos in Seattle, Washington. It is now a global eCommerce giant with a turnover in excess of $280 billion.
Through a keen strategic vision of the future and seizing opportunities to innovate with emerging technologies, this global power brand is set to dominate where and how we buy products and services.
Despite this, there are several competitors investing heavily to compete against Amazon in its different market. The Amazon business model might be secure but many of its new initiatives might be under threat.
In this Amazon SWOT analysis, I’ll take a look into the external challenges Apple faces – the Opportunities and Threats, as well as its internal capabilities to realize the opportunities and deal with the threats – Strengths and Weaknesses.
“[Amazon] isn’t just secretive, the way Apple is, but in a deeper sense, Jeff Bezos’ e-commerce and cloud-storage giant is opaque. Amazon rarely explains either its near-term tactical aims or its long-term strategic vision. It values surprise.”
New York Times
What is the SWOT Analysis For Amazon?
The SWOT analysis of Amazon shows that this global eCommerce giant is set to rapidly expand into retail but its weakness is Asia could pose a major threat.
The SWOT Analysis of Amazon
amazon financial analysis
Amazon has continued to demonstrate growth but the retail segment (physical stores) is struggling to grow and make a profit. However, its AWS cloud services show strong and profitable growth.
What are Amazon’s major strengths?
Amazon’s key strengths are based on its scale, brand and expertise in technology. These enable Amazon to offer quick deliveries, online services such as Prime Video and superior customer experience to competitors.
Strong Brand Value
Amazon is the third most valuable brand in the world according to Interbrand. This reflects not only its strong financial performance but also the popularity of Amazon with consumers.
Amazon is the largest online retailer in the world. Its scale is hard to appreciate. Last year, Amazon shipped over 5 billion Prime packages, and the retail giant’s eCommerce market share in the U.S. was close to 37%. During February 2020, Amazon.com had over 2.01 billion combined desktop and mobile visits.
For years Amazon didn’t make a profit because it continually invested in its operations: technology, distribution centres and acquisitions to improve its capabilities. Jeff Bezos called this strategy the Amazon Flywheel effect. In other words, Amazon benefits from economies of scale.
By scaling its operations Amazon is able to lower its costs, improve margins which in turn drives its scale.
All four of Amazon’s main services help to reinforce each other delivering efficiencies across the organization and improving profitability. Furthermore, the subscription business model across many of these services provides Amazon with repeatable revenue.
The global tech giant has a core focus on customer experience which in turn increases the amount each returning customer spends at Amazon. Furthermore, customer benefits from positive word of mouth which helps to further grow the business.
With economies of scale comes lower costs and that means Amazon can buy cheap, offer low prices and maintain good profit margins. Amazon also benefits from its exceptionally good cash-flow. As an organization, it has acquired companies that have helped it to optimize its pricing strategy e.g. using AI.
Range & Merchants
Amazon.com has a total of 119,928,851 products as of April 2019. Amazon offers a huge range of products many of which are from key brands and suppliers across a very broad range of products. However, over 58% of all sales on Amazon come from merchants.
Amazon has cutting edge technology that it uses to optimise its operations. From drone delivery to Amazon Go, it continues to explore new ways to compete and grow.
Superior logistics and distribution systems
Amazon has an incredibly efficient logistics and distribution system. It can not handle a massive range of products, it also gets them delivered to customers quickly.
What are some of Amazon’s weaknesses?
Amazon has yet to conquer the hardware market in any meaningful way. Additionally, Amazon is struggling in Asia due to strong local competition.
Low Retail/eTail Margins
Margins are low and this is often a criticism of Amazon but many analysts support Amazon’s strategy to continually invest in its growth. However, those margins are a weakness as global competition heats up and other etailers compete on price.
In July 2019, Amazon announced it was shutting down its Chinese domestic e-commerce business if the face of stiff competition from larger competitors such as JD.com and Alibaba. Almost 70% of Amazon’s revenue comes from the US. Rest of World, which includes huge markets like China and India only represents 11% of Amazon’s revenue. Amazon has yet to secure a strong presence in Asia.
Failures and Experiments
Amazon has had its fair share of experiments some of which have dramatically failed. As an example, the Fire Phone was a complete flop and alongside this was its attempt to replicate Apple Pay with Amazon Wallet.
Jeff Bezos in his defence though has said:
[quote]”If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle…Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures.[/quote]
PR Over Employee Treatment
Numerous reportsNumerous Amazon have hit the press about how Amazon treats its people and they don’t seem to be going away anytime soon. These allegations of unfair treatment are not just in its distribution centres but also across other parts of its business. Inevitably, these public relation issues can spread and damage the Amazon brand.
Amazon is determined to not only be online but also increase its presence across traditional retail. However, the number of physical stores are limited and cannot compete with large behemoths such as Walmart. In fact, Walmart now is aiming to go head to head with Amazon online.
Amazon purchased Whole Food to increase its physical presence and expanding to grocery stores but it still lags behind Walmart. Last year, Amazon earned around $20 billion in grocery from Whole Foods and delivery through Amazon Fresh and Amazon Prime Now. At the same time, Walmart earned $270 billion making it the world’s largest grocer.
There has been a lack of environmental transparency from Amazon regarding its policy and practice of sustainability. While it has set a goal of being carbon neutral by 2030, many argue that this is not enough. Moreover, Amazon has been slow to report on progress or discuss its policy regarding its other services such as AWS.
What are some opportunities for Amazon?
Amazon is expanding into the $3 trillion healthcare market. Strategic acquisitions could see growth in retail stores as well as help fuel growth in Asia.
Developing countries have dynamic markets that are rapidly evolving as incumbent organizations and startups are battling for growth. Through strategic acquisitions and partnership Amazon could establish a much stronger presence in these developing countries.
Further Expansion of Physical Stores
Amazon has a large pot of money to acquire further physical stores. This is a far quicker way to expand than waiting for the right locations to be available for development. Acquisitions could accelerate its presence not only in the US but across different geographical regions.
Expanding the Alexa and AI capabilities across different categories of hardware. AI, speech recognition, virtual reality and augmented reality represent new growth opportunities for Amazon through partnerships. With its strength in technology and AWS platform, it can provide the backbone and integrations necessary to innovate.
Amazon branded products
Most large supermarkets offer a ‘white label’ or an own-brand version of products. These offer the retailer a significantly more margin that branded products. Amazon is perfectly positioned to produce its own branded label of products.
Amazon acquired PillPack for nearly $1B. It has announced a joint healthcare venture called Haven with JPMorgan Chase and Berkshire Hathaway. Amazon has huge advantages already with its large distribution network not to mention over 300M active customers, 100M Prime Members, and approximately 5M sellers on the site.
What are the threats to Amazon?
Amazon faces stiff competition from Apple, Google, Alibaba as well as lots of new startups. With relatively low margins and a growing number of e-commerce platforms, Amazon’s online business faces threats e.g. Walmart.
Amazon faces competition from big and small players in each of its markets. As an example, Walmart is heavily pursuing new drone technologies to deliver goods and has actually filed more patents than Amazon. A further example, Prime video now has more competition with Apple TV+ and Disney+.
China has several homegrown eCommerce sites that could expand in key markets like the US and Europe. Alibaba and JD.com hold potential to improve their brand awareness and expand operations through strategic acquisitions and partnerships.
Amazon an online retailer is considered a juicy target for any hackers. Its stores the important data of customer like credit cards and other sensitive purchased data. Data breach is a key threat to Amazon. Any mishap (data breach & DDos attack) is inevitable and can affect the amazon stock, credibility and profitability.
Merchants and Platforms
It has become easy now to create an online shop with platforms like Shopify. More and more eCommerce shops might not seem as though they impact Amazon but progressively they could nibble away at its market share. Amazon makes less money with merchants selling than branded products. However, merchants have now grown to account for 58% of its sales.
Many governments are looking into the dominant positions of many platform businesses and asking the question if they are operating fairly. As a result, Amazon could face court cases or changes to laws that affect its future.
Summary of Amazon SWOT Analysis
Amazon’s ecosystem has also given it more cash to deploy, which is why it can afford to pursue low-profit initiatives. As Amazon enters new markets and exapnds, it follows a strategic playbook:
Attract and retain customers to the platform by providing a better customer experience.
Invest in operations e.g. warehouses, distribution and data centres.
Optimize operations using intelligent systems that reduce duplication, waste and improve efficiencies.
Monetize operations by allowing others to use the platform(s).