Industry Analysis - Retail in E-Commerce

Introduction

To analysis retail in e-commerce industry, I take Amazon.com as an example. Amazon.com, Inc. was founded and launched in 1995 by Jeff Bozos. From the beginning, it sell books via Web and developed to an integrated website products line in these years. Now, it has become the largest online retailer in the world which includes the products of books, VHS, DVD, music CDs and MP3s, computer software, video games, electronics, apparel, furniture, food, toys and etc. It provides a e-business platform for the company to develop and customers to experience the convenience of online shopping. From 1995, the net sales of Amazon.com continually increased. Nevertheless, the profit of Amazon kept negative till the year of 2003.

Figure 1 2003~2010 Amazon's sales and profit trends

Figure 2 2009Q4~2011Q3 Amazon's gross profit margin and net interest rates trends

Despite of the low rate of return, the strategies of Amazon still focus on long-term development, it continues to invest on the service technologies and improve the business process to satisfy the requirements of the customers. Furthermore, Amazon insists on low price route with huge collection of goods. As a famous brand, Amazon owns several websites and served more than 200 countries' customers.

This report will use Porter's five force analysis tool to analyze the advantages and disadvantage of the policies.

Analysis

Porter's five forces model include the threat of new entrants, the threat of substitute products, the power of buyers, the power of suppliers and rivalry among businesses. As showed in the graph, all of the other four forces will influence the rivalry among businesses in the industry. Amazon was also under the pressure from different directions in the e-commerce and retailer industry.

Graph Porter's 5 Force

1. The threat of new entrants. This factor to the industry is higher due to the lower entry barriers. In recent years, e-commerce has become a fashion in the people's lives and it is much easier than ever before to be a seller on the Internet both for individuals and organizations. Depend on the scales of online sellers, their capital costs are with a whale of differences and they use different distribution methods to satisfy the need of customers. Faced to these view, Amazon continued to increase its investment and earned absolute advantages in the industry. Therefore, it shows the policies are consistent to Amazon's position and suitable upon its environment and capabilities.

2. The threat of substitute products. This factor is also higher. The physical retailers and shops could provide