DEFINITION of 'Amazon Effect'

The "Amazon effect" refers to the impact created by the online, e-commerce or digital marketplace on the traditional brick and mortar business model due to the change in shopping patterns, customer expectations and a new competitive landscape.

BREAKING DOWN 'Amazon Effect'

As more and more people across the globe are turning to online shopping, the retail landscape continues to change rapidly. The gains for e-commerce businesses are coming at the expense of brick-and-mortar retail stores, as an increasing number of shoppers are heading for their screens instead of for stores. Amazon.com Inc. (AMZN), which debuted in 1994, has maintained its lead in global online selling, and has become the poster boy for this change, giving the "Amazon Effect" its name. 

Among other factors, the Amazon effect is cited as the primary reason street-based stores' declining sales, which have ofted foreshadowed the stores' eventual closure. A Business Insider report cites that more than 6,400 stores closed their doors for good in 2017. Beyond hitting the revenues of traditional retail stores, the Amazon effect has also led to significant changes in consumer shopping patterns. For instance, based on the convenience they experience on online shopping portals, today’s shopper expects a lot more variety even while visiting a retail store. While it may not be possible to clearly read the contents or specifications mentioned on a small-sized pack containing an electronic gadget or cashew nuts in a retail store, the same product details can be easily accessed in large text on the online shopping sites. The seamless online shopping experience has also impacted the behavioral expectations of shoppers, as they now expect the same smoothness, timely response and convenience even for services (like at a salon) that generally cannot be offered online. (See also, Amazon to Sell Real Christmas Trees.)

The need to drive to a store, pick and choose items, and the impatient wait to pay is eliminated by online shopping, even if it comes at a slight premium. Technology-powered shopping portals also allow comparatively better utility to customers, like easy repeat of standard monthly grocery orders. Use of big data and artificial intelligence (AI)-powered systems that better monitor a customer’s shopping pattern and behavior on online portals are a win-win – the consumers receive customized offers and promotions, and shopping portals benefit by pitching products with a high liklihood of being purchased. These features are not available to traditional retailers, or are costly. High real estate costs also put the retail stores at a disadvantage.

Amid rising protests from brick-and-mortar retailers across the globe, large online players are launching initiatives to loop the former into their supply chains in an attempt to make it a win-win. For instance, many online shopping portals allow online ordering with a pick-up option at a nearby retail store. Store operators benefit by receiving a cut for their service, by supplying a few of the ordered products from their own stores, and by an increase in foottraffic in their stores.

Irrespective of the developments, online shopping continues to evolve with new high tech offerings, and continues to disrupt retail markets across the globe.

RELATED TERMS
  1. Click And Mortar

    Click and mortar is a type of business model that has both online ...
  2. Retail Industry ETF

    A retail industry ETF is an exchange-traded fund that invests ...
  3. Comparable Store Sales

    Comparable store sales is a retail store's revenue in the most ...
  4. Electronic Commerce (e-commerce)

    Electronic Commerce (e-commerce) is a business model that enables ...
  5. Chain Store Sales

    An indicator that provides information on the monthly sales volumes ...
  6. Green Monday

    Green Monday is a retail term for the second Monday in December, ...
Related Articles
  1. Personal Finance

    Comparing Online And In-Store Prices

    While every retailer is different, there are several factors that affect where you'll get a better deal.
  2. Personal Finance

    Four Online Shopping Alternatives To Amazon

    There are several alternatives when it comes to online shopping. The more you know about the reputation of the vendor and the quality of the product, the better your purchase experience will ...
  3. Personal Finance

    Should You Buy Groceries Online?

    A look at this new way to shop and whether it will help you save or end up costing you money.
  4. Personal Finance

    Shopping Online: Convenience, Bargains And A Few Scams

    Shopping from the comfort of your couch has major benefits - and some unpleasant side effects.
  5. Personal Finance

    The Future of Retail Is Not Big Box Stores

    The future of shopping involves a lot more Internet and a lot less window shopping at the mall.
  6. Personal Finance

    Amazon Financing Now in the U.K.: Is America Next?

    Amazon has unveiled a great credit product in the U.K. Will America be the next country to have access to this financing option?
  7. Investing

    5 Retailers Set to Close More Stores in 2016 (FINL, GPS)

    Discover retail stores that have already announced plans to close stores in 2016. Some expect a new economic downturn, which may lead more stores to close.
  8. Insights

    19 Retailers Are Shedding Stores So Far in 2017

    As consumers increasingly spend money on restaurants and travel, mall-based retailers feel the pinch.
  9. Investing

    5 Retail Stocks That May Ruin Your New Year

    The 16% rebound in retail stocks may be short-lived
  10. Investing

    Why Macy's, Nordstrom, Target May Rise on Holiday Sales

    With the holiday season just around the corner, a number of traditional retailers could get a boost.
RELATED FAQS
  1. Hard and soft goods in the retail sector

    Understand the difference between hardlines and softlines offered by various retailers. Find out about the characteristics ... Read Answer >>
  2. What's normal for profit margin in retail sector?

    Find out the typical profit margin for a major retail company, and learn how it compares to the profit margins for other ... Read Answer >>
  3. Who are Nordstrom's (JWN) main competitors?

    Learn more about Nordstrom (JWN) and its competitors in the retail industry. Find out how Nordstrom competes with other companies ... Read Answer >>
Trading Center