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Thursday
Oct042012

Show 113: Amazon Prime

Ian Rasmussen is back on the podcast for a discussion with Chuck about Amazon Prime. Ian is a professional twice over and, like Chuck, has always wanted to be a member of the Blue Man Group. Enjoy this fun and informative little show.

Amazon Prime (73 MB)

Reader Comments (4)

Do you think Amazon Prime is so much an urban thing as it is a suburban one? Now when I say urban I mean like "urban core" urban, not "just happens to be in the city limits in some 1920s streetcar suburb with an OK neighborhood business district" urban. In a very dense place like Manhattan or Brooklyn, the inner neighborhoods of Chicago like the Near North Side, Lincoln Park, etc., or Georgetown in Washington DC, you have so many great stores in such close walking distance that it's not a chore to go shopping, in fact it can be remarkably pleasant. Unfortunately, this doesn't work so well in many smaller places, even if they have good urban fabric, because the retail has been decanted to so many farther-flung locations.

Also, the list of Main Street business that aren't threatened by Amazon does leave out one thing. While restaurants and banks may be ok, in many of those other businesses, if they're not catering to the "I need this right now" folks, people still go there to try on clothes, play with the cameras, smell the fragrances, then they go home and order it online anyway. This is a problem for stores that charge more in exchange for good customer service, because people come use their customer service without buying from them. It's a problem at clothing shops, bike shops, home goods type places, anywhere that sells electronics, etc. Now I will grant that bike shops are one of the few examples that's actually a local business that suffers from this, while in most cases it's the big boxes that act as surrogate showrooms.

I'm glad you touched on the notion that Amazon is merely the next level up in competition to Main Street businesses from the big box stores. I guess it's probably too much to ask that both Amazon AND big box stores go away in order to allow Main Street to thrive, but perhaps the exigencies of peak oil, climate change, credit availability, and infrastructure issues will level the playing field somewhat. I suspect in an energy and capital scarce future Amazon will get a bit less enticing (especially as more and more states crack down on them to collect sales taxes), Main Street will get a bit of a boost, and the big boxes will mostly wither away. With Amazon creating more and more localized (or at least regional) distribution centers I bet they could keep up pretty speedy delivery even without air freight or huge fleets of long-haul trucks. Back at the tail end of the electric interurban railway era in Ohio in the 1930s you could get same-day freight delivery between Cleveland and Cincinnati. Not too shabby, and it required very little infrastructure to boot.

The South Memphis example is a sad story, but it's the economies of scale behind it that are even more insidious. I have no doubt that those small store owners wouldn't be able to buy those same products directly from the distributors as cheaply as they could as a customer at Wal Mart. A few years ago someone locally told me they couldn't buy bulk 6-packs of CocaCola for their own corner store directly from CocaCola as cheaply as they could get it retail at Kroger. The good point though is that it's usually worth it to pay a little extra for the convenience of not having to drive across town to get those things at a very unpleasant place to shop.

October 5, 2012 | Unregistered CommenterJeffrey Jakucyk

Awesome! I was wondering when you were going to get around to talking about this. With the coming agreement on sales tax, it sure seems like Amazon will start to do same-day delivery in many major metro regions, and this will dramatically change retailing.

A few disjoint thoughts on the economics, from a non-Amazon Prime subscriber:

It seems to me that when we go to a local store-front hosted store, we're paying a premium for four things:

1. Availability and inventory - it's Sunday afternoon and I need a MacGuffin right now to finish the project I'm working on.
2. Merchandising - we may very well not have known we wanted something until we saw it there.
3. Community - running into people we know, having conversations with neighbors.
4. Knowledge - the staff in the hardware store who knows how to fix that thing.

One of the problems with big box stores, especially like Home Despot and Lowe's, is that they've abandoned the low-turnover items in order to keep prices low. And trade or more local hardware stores used to subsidize some of the costs of those low-turnover items with the items that moved more (ie: Everything gets a 30% markup, no matter how quickly it turns). With the race to the bottom of the big box stores, cheaper versions of brands that already were sketchy, abandoning the low-turnover but often necessary items, the smaller more focused stores started following along, and now many of those items are special-order.

So the down-side to Amazon Prime could be that we're losing the local inventory of the special-order items, the up-side is that with a customer base of a couple of million people covered by the distribution network, what went from in-stock to a 2 week special order will now be a next-day or same-day item.

Merchandising will always exist to some extent. People talk about clothing and food as the last hold-outs, but these days I buy my clothing from CostCo, and though I doubt that the grocery section will go away any time soon, I know that at least one neighbor buys most of their processed or prepackaged food from Amazon Prime.

Now we get to the harder ones: Community and knowledge. In watching how the downtown of the cute little tourist town I inhabit, I'm amazed and slightly shocked at how the whole space is going to Yoga studios and coffee shops. But, really, that's going towards paying directly for much of what we want from the retail experience: Social spaces. I'll be fascinated to see how this continues to play out, whether we'll reclaim our living rooms again,or whether we'll find other excuses (and other forms for those public spaces, maybe some which are more "pub" like, with smaller rooms for break-out discussions).

Finally, on knowledge, as y'all point out, the net is taking this over. But the weird thing about this is that reputation management in search engines is now becoming the source of value, not the knowledge itself. No longer can we assume that the guy in the small local Ace affiliate knows his stuff, and the guy in the big chain hardware store is going to lead you astray, on the Internet, nobody knows if you're a big box blow-hard.

What this seems to point to to me is that product directions, not just retailing mechanisms, will bifurcate. On the one hand you'll have the commodity products that Best Buy was trying to sell become ordered from Amazon, on the other hand, you'll have the Apple store model.

This will happen in other places: I've become a fan of a fairly expensive line of power tools. Festool keeps a very short leash on its dealers with respect to pricing. That dealers can't compete on price means they compete on other factors, so not only am I buying a product which isn't designed as a "I have to sell cheaper than Black & Decker" tool to move for the homeowner who will only use it twice, I'm buying the service from a dealer who says "yeah, bring that piece you can't cut down to the shop and use my tools for it".

The good news is that the agreements that it looks like Amazon is coming to means that towns will get their sales tax back. The bad(?) news is that commercial and retail space will be dramatically changing. I'm not sure what this means for downtowns yet, but I'm guessing that the strip malls and mid-sized stores are going to have some very painful adaptations.

October 8, 2012 | Unregistered CommenterDan Lyke

This podcast struck me as a bit off-message, but I enjoyed it and understand why you wanted to discuss the subject. I've heard a lot of buzz specifically against the the Amazon price-check app, with a lot of the arguments you alluded to in the podcast.

I agree that Amazon is potentially more of a big-box killer than a local retail killer (for everything except books, anyway). I try to keep on top of the unique or non-commodity goods our local retailers carry, and I buy from them whenever possible, even if it means paying a bit more sometimes. I want the good local retailers stay in business, and I understand that they don't receive the Wal-Mart quantity discount from their suppliers, in addition to the costs they incur running a brick-and-mortar business. I decided early on that I would never take advantage of local retailers by using the Amazon price-check app against them, but I don't mind using it at the big boxes. That satisfies my sense of fairness.

In short--I think Amazon is an example of a marketplace in transition, and I see it working almost as strongly in the trend of re-localization as in "retail killing".

I was surprised that neither you nor Ian mentioned my favorite feature of Amazon Prime membership - the Kindle owners' lending library! I get to read at least another 12 books a year on my Kindle that way!

October 13, 2012 | Unregistered CommenterTracy Davis

Funny, I did the trial because of this podcast and now see the add-on scandal. What is your tale on this? Will there be a follow up on the show?

Still have a month to try it out.

October 17, 2012 | Unregistered CommenterGreg Muir
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