Amazon in Focus is RetailNet Group's authoritative new study, with groundbreaking insight into the world's most disruptive retailer and a playbook to maximizing profitable growth.

1. APRIL 2013
RETAILNETGROUP.COM | RNGDIGITAL@RETAILNETGROUP.COM
© RetailNet Group 2013

2. Copyright & Disclaimer
The analyses and conclusions presented in this work represent
the opinions of RetailNet Group. The views expressed do not
necessarily reflect the views of the management of the
retailers or suppliers under discussion.
This work is not endorsed or otherwise supported by the
management of the companies covered.
© 2013 RetailNet Group, All Rights Reserved. No part of this
publication may be reproduced, stored in any retrieval system,
or transmitted, in any form or by any means, electronic,
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written permission of the publisher. www.retailnetgroup.com

3. Even As It Scales, Amazon’s
Growth Outpaces Competitors
US Store-Based Retail
(SBR) is growing at
3.4% CAGR 13-16
Total US Ecommerce is
growing at ~3.5X SBR
Amazon is growing at
~2X ecommerce in the
US
Outpacing US Store-Based
Retail’s Growth Rate by 6X:
Source: RNG research & analysis
58%
51% 48%
34%
26%
22%
8%
23%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2012 2016E
ShareofTotalUSEcommerceSales
Brick&Mortar.com Pure-Play Amazon
Amazon is Consolidating Non-
Store Retail in the US

4. Including 3P GMV, Amazon is
Already an ~$86B Retailer
Source: RNG research & analysis
Including 3P Gross Merchandise Value (GMV), Amazon is currently:
• The 7th largest retailer globally
• 23% of global ecommerce sales

5. Amazon’s Influence Goes Way
Beyond What it Sells
Source: RNG research & analysis; *Forrester July 2012
Amazon’s “limitless” selection &
info-rich product detail pages
make it a destination for product
research
30%
13%
0%
5%
10%
15%
20%
25%
30%
35%
Amazon Google
Share of Product Research by
Origin
Amazon has growing influence over offline
retail as shoppers research before the trip &
in-store—a key driver of “digitally-
influenced” retail
*

6. Amazon Defies Conventional
Financial and Retail Metrics
Source: RNG research & analysis
-$5.00
-$4.00
-$3.00
-$2.00
-$1.00
$0.00
$1.00
$2.00
$0
$50
$100
$150
$200
$250
$300
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Stock Price Earnings/Share
Amazon’s EPS defies conventional
logic, but investors (and vendors)
see long-term earnings potential:
• Amazon takes the long view and is
willing to be misunderstood
• Amazon constantly reinvests in growth
and new businesses, e.g. offering faster
subsidized shipping over increasing
margins
• Amazon is selectively willing to sell at a
loss/low margins to win lifetime
customers and “annuity” revenue
streams (i.e. Kindle Fire)
• As the low cost player, low margins help
Amazon gain share and discourage
potential competitors

7. Amazon’s Asset-Light Structure and
Platform Approach are Key Advantages
Source: RNG research & analysis
Amazon’s asset structure is very
different from Brick & Mortar
retailers
B&M:
• Assets are ~30% as a percent of
sales
• They include primarily
depreciating assets along with
rent & labor, which continue to
increase in cost over time
Amazon:
• Assets are ~9% of sales
• Amazon is asset-light and its
assets include technologies that
get less expensive over time i.e.
data storage
• Amazon has optimized its asset
base and created ancillary
businesses out of excess
capacity i.e. FBA & ASW

8. AmazonFresh is Coming…
The ‘Trojan Horse’ for Same-Day Delivery?
Phase 1:
2007-2012
Seattle
Incubation
Phase 2: 2013
Rumored
Expansion
(California)
Phase 3:
2014+
“National”
Expansion
Building on its “forward
deploy” fulfillment center
network, Amazon could
match demand to truck
capacity to deliver
general merchandise
same-day in cities that
offer AmazonFresh
Source: RNG research & analysis
Amazon incubates
AmazonFresh, its full-
basket grocery delivery
service, including
Amazon’s own last-mile
delivery fleet

9. Masters of Real-Time Retailing…
Dynamic Pricing, Merchandising, and Marketing
Source: RNG research & analysis
Prices change by the hour
25-30% of sales are driven
by personalized
recommendations

10. Amazon’s Dynamic Pricing Model is
Disruptive—and Shoppers Love It
Source: RNG research & analysis
Amazon checks
against its own
platform’s 3P prices
Internal assessments
of the importance of
the ASIN
Pricing
Algorithm
Selling Price
Amazon crawls key
competitor’s sites
Shopper-scanned
prices from in-store
MAP/MSRP
Shown Price
Great Price Communication
MAP

11. When Amazon Wins Shoppers, It Retains Them—
and Grows Wallet Share Exponentially
A $79 annual membership programs entitling members to
free 2-day shipping on over 15M eligible items & access
to a Prime Instant Video
• Launched in the US in 2005 and currently available in
all markets except China
• Prime members visit the site 3X non-prime and
households spend 3-5X non-prime households
An auto-replenishment program for consumables like paper
towels, shampoo, and diapers with free shipping and a
discount of 5% or 15% (with at least 5 subscriptions)
• Launched in the US in 2007 and currently available in
the UK, Germany, France, and Japan
• Accounts for 40%+ of Amazon’s sales in certain
consumables categories
• Instrumental in the growth of many consumables
categories (i.e. Baby)
Source: RNG research & analysis

12. Amazon Does Have Vulnerabilities
• Its competitors already have large, loyal customer bases and local
inventory—and they’re investing aggressively
• Non-store economics are hard, especially for low-cost, heavy, and
temperature-controlled items
• It is platform-driven, not partnership-driven; some vendors find it
difficult to work with, unwilling to share data, and expensive to fund
• Amazon competes with 3P sellers it increasingly depends on
• It is an item merchant; it doesn’t benefit from the blended economics
(or data) of full-basket models
• Its user experience prioritizes the functional over the emotional – hard
for premium/aspirational/lifestyle brands to accept
• Online category specialists (verticals) can best its one-size-fits-all
approach to merchandising
• It struggles in key international markets, especially as a late entrant
Source: RNG and Ideoclick research & analysis

13. The Skillset and Playbook for Amazon
Vendors are Different than Brick-and-Mortar
• You do business through Amazon, not with
Amazon
• “The internal sell” is as complex as engaging
Amazon itself
• Winning the digital shelf requires world-class
digital assets (images, copy, reviews, etc.)
• The economics of non-store retailing are complex
• The merchandising menu is long; it’s essential to
know what works (and what doesn’t)
Source: Ideoclick; RNG research & analysis

14. Learn More
For more about Amazon, stay tuned for a webinar on May 1 and the
forthcoming release of Amazon in Focus: The Authoritative Guide to Amazon
for Retailers and Suppliers
• Amazon In Focus – May 1 @ 1pm EST
– Register
– Add to Calendar
– Event Password: Amazon
• Pre-Order Amazon in Focus HERE
• Sign up for the Amazon in Focus Session at the RNG 2013 Mid-Year
Forum HERE
– Chicago, June 27th
Questions? Comments?
• Call: 757-270-3839
• Email: RNGDIGITAL@retailnetgroup.com
• Web: RetailNetGroup.com

15. Amazon in Focus: 200+ Slides, Full-Text
Commentary, & Half-Day Workshop
Amazon in Detail
• The growth model explained
• Growth trajectory: country and
category expansion
• Culture & organization structure
• Economics & financial model
• Pricing, marketing, and
merchandising approaches
• Fulfillment center network and
logistics model
• AmazonFresh in Detail
The Amazon Vendor
Playbook
• Launching new products on Amazon
• Improving search ranking on Amazon
• Delivering high-performance product detail
pages
• Assortment strategies
• Best funding practices
• Optimizing packaging, pack configuration
and supply chain
• Getting optimal value from Amazon Retail
Analytics (ARA)
• Strategic Vendor Services (SVS) – If, when,
and how
• Managing key third party (3P) marketplace
challenges
• Closing out and liquidating on Amazon