AMAZON and ALIBABA - Retail's Most Disruptive Forces

RETAIL’S MOST DISRUPTIVE FORCES
@johnbatistich

“Never before have we seen a company so large, grow so fast,
disrupt so many sectors, spend so much on R&D, deliver so much
radical innovation, engender so much customer loyalty, attract
the lowest cost of capital, have such a high PE ratio, generate so
little profit, pay so little tax, and destroy so many jobs.”

Sam Walton
Mastered the art of minimum wage
employees selling you stuff in
warehouse stores.
Jeff Bezos + Jack Ma
Mastering the science and algorithms of robots
to get stuff you want fast before you need it.
RETAIL’S TECTONIC SHIFT
Photo Source: Google Images. Quote Source: Adapted from Scott Galloway L2 Inc. 2016.
Scott Galloway (L2 Inc.) has defined the shift in Retail by contrasting Sam Walton & Jeff Bezos.

C ULT UR E
R E TA IL E C O SYST E M
PE R FO R MA N C E
A MA Z O N R E IN VE N T IN G R E TA IL
A LIB A B A’ S N EW R E TA IL IN N O VAT IO N S
3 R E TA ILE R S W IN N IN G W IT H A MA Z O N
4 C O N SE Q UE N C E S
N EW R ETA IL MOD EL FO R G ROW T H A N D RE ALIT Y
9 LE A R N IN G S

“Over the last two decades, we’ve collected a large
group of like-minded people. Folks who find our
approach energising and meaningful….customer
obsession rather than competitor obsession,
eagerness to invent and pioneer, willingness to fail,
the patience to think long-term and the taking of
professional pride in operational excellence.”
CULTUREECOSYSTEMPERFORMANCEAMAZONALIBABACOMPETITORSCONSEQUENCESREALITYLESSONS

14 LEADERSHIP PRINCIPLES
Source: Amazon.jobs

“Get used to rejection, keep your
dream alive, focus on culture, ignore
the little man (who doesn’t
understand your idea), get inspired,
stay focused, have a good name,
customers are number one, don’t
complain, look for opportunities and
lastly…have passion.”

CHAMPIONING GLOBAL SMALL BUSINESS
Source: Alibaba
Spirit of entrepreneurship, innovation and unwavering focus on meeting the
needs of our customers to generate opportunities for prosperity

Source: Amazon Annual Reports
“Our mission is to be the Earth’s most
customer-centric company, where
customers can find and discover
anything they might want to buy online,
and endeavors to offer its customers the
lowest possible prices…we always work
to meet those needs, innovating new
solutions to make things easier, faster,
better, and more cost-effective.”

THE CORE FLYWHEEL

“Whilst Amazon is an empire
that controls the supply chain
we are focused on developing
an ecosystem to empower
others to sell and service. We
are an ecommerce company
improving the world by helping
10M global small businesses
serve 2B customers”

COMMERCE ECOSYSTEM
Source: Alibaba Investor Presentation
Tmall Taobao Alibaba Cloud
Media & Entertainment Global Fulfilment M&A

107
136
178
12.3
23
32
2015 2016 2017
Revenue
US$ Billions 2015 - 2017
FINANCIAL PERFORMANCE
Source: Company Reports
0.6
2.4
3
3.9
11
6.3
2015 2016 2017
Net Income
35.4
47.7
65.9
8.4
10.3
14.3
2015 2016 2017
Gross Profit
9.6
15.5
14.4
15.1
19.7 19.5
2015 2016 2017
Net Assets
GSV
$550B

728
459
Market Cap
US$ Billions April 2018
FINANCIAL PERFORMANCE
Source: Yahoo Finance
Profit Margin
% 2017
PE Ratio
97.5
43.7
1.70%
30%

541
50
Employees
Thousands End Dec 2017
MARKET PERFORMANCE
Source: Statistica. Company Reports. eMarketer
Home Market
Share of Revenue
2017
59%
90%
300
488
Customers
Millions
44%
51%
Market Share
Ecommerce Home
Market 2017

REINVENTING RETAIL
4
@johnbatistich

AMAZON MARKETPLACE BREAKTHROUGHS
Biggest Range
Cheapest
Pricing
One-Click
Purchase Innovation
Personalised
Recommendations
Prime
Membership
Product
Reviews
Free Delivery.
Free Returns

5% 6% 7%
18%
27%
38%
45%
66%
2010 2011 2012 2013 2014 2015 2016 2017F
Source: L2 from Piper Jaffray, MWPL. Facebook. Twitter. US Census Bureau. L2 Inc.
US Population living within 20
Miles of Fulfilment Centre/Stores
FULFILMENT INFRASTRUCTURE FASTER DELIVERY
Amazon’s US Fulfilment & Whole
Foods Network

Source: Euromonitor International & Credit Suisse
AMAZON’S SALES MIX
US Amazon GSV
$B 2011-2016
Amazon & Third Party Product
Range & Fulfilment %

Source: L2 Inc. Scott Galloway DLD 2017.
AMAZON LEADS PERSONALISATION

AMAZON DEVICES
KINDLE FIRE TABLETS FIRE TV DASH ECHO

AMAZON PRIVATE LABEL CHALLENGING BRANDS
Amazon’s Expanding
Owned Brands Categories
Amazon’s Owned Brands Leading
Category Shares
Source: Mashable 2016
Batteries 31% 21%
Diapers 47% 16%
Speakers 45% 16%
Health &
Beauty Everyday
Essentials
Clothing
Apparel

Source: Amazon
AMAZON & BEYOND PAYMENT INNNOVATIONS

Photo Source: Google Images

“

Leverage 465 store network & apply
AmazonFresh, Pick Up & PrimeNow
innovations to offer a range of fast cheap
delivery options. Lower prices. PL on
Amazon.com. Amazon Lockers.
17% traffic increase

@johnbatistich
“We want Prime to be such good value, you’d be irresponsible not to be a member.”

PRIME MEMBERSHIP OFFER
Source: Amazon.com

2 5
12
25
40
53
66
90
100
2010 2011 2012 2013 2014 2015 2016 2017 Apr-18
Members ($M) Revenue Per Customer
$700
$1,300
$10,000
Non Member Prime Member Ambition
PRIME MEMBERSHIP & VALUE
Source: Business Insider. L2. Amazon Company Reports. Recode.
Drivers
Faster fulfilment
Better pricing
Private Label Discounts
Video/Music streaming
Alexa

"When Amazon grows we grow”
David Potts CEO Morrisons
Prime Now customers can order one-hour deliveries. Orders
picked at local Morrisons store and delivered the same day by
Amazon within one hour for £6.99 or in a two-hour slot for free.

“Prime Video offers exclusives from some of the world’s most passionate storytellers. These shows are
great for customers, and they feed the Prime flywheel – members who watch Prime Video are more likely
to convert from a free trial to a paid membership, and more likely to renew their annual subscriptions. We
measure engagement and obtain data to make better customer recommendations”
@johnbatistich

“When we win a Golden Globe, it
helps us sell more shoes.”

DISRUPTING CONTENT TO DRIVE PRIME FLYWHEEL
Source: L2 Inc. via The Economist
$2.5
$4.0 $4.3 $4.5
$6.0
2017 Content Budgets ($B)

@johnbatistich
“Alexa is primarily about identifying tasks in the household that would be
improved by voice. (For shopping) Alexa is good for reordering
consumables, where you don’t have to make a lot of choices.”

“Alexa, the voice service that powers Echo, provides
capabilities, or skills, that enable customers to interact with
devices in a more intuitive way using voice. Examples of
these skills include the ability to play music, answer
general questions, set an alarm or timer or order needs.”

2.4
5.2
17
2015 2016 2017E
Echo Installed Households (M)
INCREASING ECHO ADOPTION & SKILLS
Skills Available
130
6068
25000
35000
2015 2016 Oct-17 Apr-18
Source: Company Reports. Business Insider.

Spending increases by +10%.
84.9% 82.4%
66%
45.9%
40.9%
25%
34%
17%
31%
10%
Tell Time Play Music Read News Control Lights Shop/Order
Source: Experian, Creative Strategies (Based up on a survey of 180 Amazon Echo users conducted May 2016)
Echo Usage (%)
ECHO USE CASES
Tried once
Used frequently

70.6%
23.8%
5.6%
Amazon Echo Google Home Other
User Share of Voice Enabled Speakers in the US
2017
AMAZON LEADING ON VOICE INTERFACE
Source: EMarketer

ALEXA PLATFORM PARTNERS

@johnbatistich
“AWS has become the world’s most comprehensive, widely adopted cloud service with
more than a Million customers. AWS offers more than 70 services: compute, storage,
databases, analytics, mobile, internet of things and enterprise applications”

4.6
7.9
12.2
20
2014 2015 2016 2017
AWS Net Sales ($B) Significant Product Features Released
Source: Amazon Company Reports.
61 82
159
280
516
722
1000
1400
2010 2011 2012 2013 2014 2015 2016 2017
AWS REVENUE AND INNOVATION

COMPETITIVE POSITION FOR CLOUD SERVICES
40%
25%
35%
Source: Gartner. L2 Inc from Synergy Research Group
2016
Other
Gartner Cloud Infrastructure Comparisons Market Share ($)

NEW RETAIL INITIATIVES
5
@johnbatistich

Source: Alizila

@johnbatistich
Source: Alizila

Source: Alizila

3 RETAILERS COMPETING
WITH AMAZON
6
@johnbatistich

PERSONALISED SERVICE AND CX TECH

4 CONSEQUENCES
7
@johnbatistich

STORE CLOSURES JOB LOSSES
6,100
4,500 4,300
2,600 2,500 2,400
3,200
2,600
9,200
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Credit Suisse
US Retail Store Closures
2009 - 2017

LOWER TAXES
Source: S&P Global Market Intelligence. L2 Inc.
39% 38%
35%
31% 31%
27%
24%
21%
17% 16%
13%
Lowe's Home Depot UPS Starbucks WalMart S&P 500 FedEx Microsoft Apple Alphabet Amazon
Tax Rate Covering US Federal, State and Local and Foreign Taxes
2007 - 2015

1%
-4%
-5%
0%
1%
-3%
-5% -5%
0%
1%
-4% -4%
-5% -5%
2%
-5% -5%
-7%
-9%
AMAZON INTENTION EFFECT
Impact of Stock Price in First 24 Hours Following an Amazon Announcement
Dental Supplies RX Drugs Sporting Goods Grocery
Source: L2 Analysis of Yahoo Finance Data

POLITICAL INTERFERENCE
Source: Center for Responsive Politics. L2 Inc.
17.0 16.4
15.4
14.3
13.6
11.8 11.4
10.1
8.7 8.7
Boeing AT&T Alphabet Comcast Dow Exxon Amazon Verizon Microsoft Facebook
Top 10 Lobbying Spenders 2016

9 DRIVERS FOR THE NEW
MODEL FOR GROWTH
8
@johnbatistich

S&P 500 Companies with Above Average Revenue Growth
Past 5 Years
56%
50%
37%
32% 30%
26% 25% 25%
22% 21% 19% 18% 18%
Source: L2 Inc. S&P Global Market Intelligence, USA Today Research.
Technology B2B
Technology Algorithm
Outsourcing
Health
FASTEST GROWING COMPANIES

NEW DRIVERS FOR VALUE
Source: L2 Gartner
AWESOME USER EXPERIENCE

SALES POTENTIAL COMPARISONS
Source: Statistica. eMarketer. Euromonitor International.
5%
4%
6%
1%
0.7%
Share of Ecommerce %
44.0%
26.5%
40.8%
12.0%
8.7%
Share of Total Retail %
1995 1998 1998 2002 2013

MARKET EXPECTATIONS
-4%
-6%
-1.8% -2%
-1.7%
-4%
Harvey
Norman
JB Hi-Fi Myer Premier RCG Super
Retail
Amazon’s Potential Sales Impact
Source: Citi Research estimates
-19%
-23%
-18%
-8% -8.0%
-17%
Harvey
Norman
JB Hi-Fi Myer Premier RCG Super
Retail
Amazon’s Potential EBIT Impact

AMAZON’S PLANS
1. Build Team/Partnerships
Create Amazon Culture
Appoint Partners/Engage Retailers/Brands
Tech build/converge .com & .com.au
4. Build Out Distribution Centre
Network & Partner with Aus Post
8 Distribution Centres likely
Aus Post manages last mile
6. Launch Prime
Membership Mid 2018
Guarantee Next Day delivery
Support with free video/content
3. Focus on Input Drivers
Wide Range
Equal lowest Pricing/No undercutting
Improve Fulfilment (but not solve)
Exceed Customer Expectations
7. Learn Grocery
Hold to find best route to market
5. Expand Range
Increase First Party Product Mix
Focus on Apparel/Footwear
Expand longtail
2. Measured Staged Low
Investment Strategy
No owned last mile distribution
Staged Category Roll-out
No Grocery first 5 years
Best single day launch in history
Traffic almost doubled to 3.8M Visits
48% Books 31% Consumer
Electronics
90% Third Party

INCUMBENTS FUTURE
Innovation Platform Invention
Path to Purchase Eliminate Stages. Magic Delivery
Competitor Focus Customer Obsession
PowerPoint Presentations Narrative Recommendations/Decisions
Profitability Reinvest for Growth Storytelling
Products Dominate Open Platforms
Assets Capabilities & Super Powers
Next Quarter Long Term View
Win Share. Make Budget Day One. Make History
LEARNINGS FROM RETAIL’S DISRUPTIVE FORCES

@johnbatistich
John Batistich
https://www.slideshare.net/jbatistich/
CONTACT

AMAZON and ALIBABA - Retail's Most Disruptive Forces

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AMAZON and ALIBABA - Retail's Most Disruptive Forces