Industry headwinds are Amazon tailwinds: How the retail juggernaut just keeps growing

But they all work in Amazon’s favor.

Retail e-commerce growth: Good for Amazon

A recent post by the Financial Times summed up the state of the economy perfectly: “The good news: the global economy is recovering. The bad news: not that much”. That sums up retail e-commerce too, with a single digit growth forecast in 2024 after two years of post-Covid decline.

And while a return to growth is of course good news, at less than 5%, there’s not a huge amount of organic growth out there for UK retailers and brands. The consequence? Fiercer competition for shoppers, with brands increasingly turning to retail media, as inventory and targeting sophistication evolves with demand.

Indeed, according to Emarketer, in the UK, retail media ad spending growth is set to outstrip any other media investment; it’s set to accelerate further, to almost 16% of digital ad spending by 2027.

This all works in Amazon’s favor. Representing 71.5% of retail media spend in the UK, 78% in Germany and 75% in the US, Amazon stands to gain most from the retail media boom. Its advertising solution has advanced considerably, now boasting a truly end-to-end marketing funnel, with the recently-added broadcast offering in Prime Video Ads. With advertising net sales now approaching 10% for Amazon (already hitting 8.2% as per Q1 earnings release), and its growth outstripping all other elements of its business, this is a significant tailwind.

Inflation: Good for Amazon

Inflation is also improving, but not as much as had been hoped. The US’ Federal Reserve, European Central Bank and Bank of England all remain short of targets. In response, markets are now betting on less than half the expected interest rate cuts in 2024 than at the beginning of year (although the Bank of England still says that further interest rate cuts are ‘possible’ this summer). This all limits consumer spending and sustains cost pressures for manufacturers and across retail supply chains.

Amazon, though, is uniquely positioned to benefit disproportionately versus its competitor set in an inflationary environment. Why? First, because of its sheer scale. Second, thanks to its diverse revenue streams (AWS, Advertising, Retail, 3P).

With a global workforce of over 1.5 million and a vast owned and operated logistics network, Amazon is simply more in control of its own destiny than others. This is evidenced by bumper operational profits in its latest two quarterly earnings reports, and its 2023 operating margin improving to 6.4% compared to 2.4% in 2022. Chief executive Andy Jassy highlighted improved “cost to serve” in his most recent letter to shareholders, helped by over 27,000 job cuts and a regionalization of storage methods significantly reducing travel costs.

Beyond just cost cutting, Amazon continues to invest for the long term, including with a $2.75bn strategic investment into AI house Anthropic, and $9bn into cloud infrastructure in Singapore.

Third-party cookie deprecation: Good for Amazon

As Google gradually deprecates third-party cookies on Chrome this year, retailers, publishers, and advertisers that have been reliant on cookies for targeted advertising and customer insights are moving to alternatives.

There’s no silver bullet solution out there, which creates nervousness and uncertainty for future marketing and analytics activities. For instance, programmatic buyers, who have historically relied on cookies to drive reach and engagement with target audiences, will need new solutions that comply with privacy standards, while still delivering performance. Not easy.

For Amazon, however, a greatly improved DSP and a comparatively simple data clean room solution in Amazon Marketing Cloud (AMC), mean that the giant is again is incredibly well-positioned to benefit from the wider industry challenges. Last year, The Forrester Wave ranked Amazon’s DSP as a leading Omnichannel solution, alongside the Trade Desk and Google. This, combined with AMC’s ability to integrate with Amazon’s enormous first-party shopper data, means Amazon can offer advertisers confidence in investment decisions, just when confidence in those decisions is reducing everywhere else.

Furthermore, advertisers can combine that shopper data with their own first-party data to model unique audience segments. These integrate directly with Amazon’s DSP and can be targeted across all available inventory, even across Prime Video ad inventory. Our clients are finding that AMC audiences are outperforming out-of-the box DSP audiences by 2-4x.

Defying gravity

In his most recent letter to shareholders, Jassy references a core learning that he calls “not to fight gravity”, referencing Amazon’s ability to continually innovate in line with consumer and technology trends, rather than fighting inevitable change.

But while a recent Kantar survey shows that while Amazon is the most preferred media brand for consumers for the second year running, it doesn’t yet appear in the top 5 for marketers. With the tailwinds only likely to grow stronger, when it comes to Amazon, it may be best to not fight gravity.

For more deep analysis of the heroes and villains of retail in 2024, head over to our focus week hub.