The D2C Generation is beginning. We won't realize it.
As America is contemplating opening the economy with restrictions, the 'battle of eCommerce dominance' is entering a significant moment.
The battle isn't so much more than a skirmish if you look at it from Amazon's perspective.
Jeff Bezos has always operated from the principle that there are 'fundamental truths' about any business that does not change. For example, consumers are not going to say that they don't want products at affordable prices. Long term strategies of Amazon have always been around keeping the prices down while offering the widest selection possible.
Whatever comes in the way of serving the above goal is treated as a temporary distraction that needs to be eliminated or optimized for.
The ability to procure, pack and deliver essential supplies to millions of homes and hospitals with relative certainty matters. So what would happen to the 'anti-trust' investigations against Amazon? The customer won't care much about who does it as long as someone does it for them. How does Amazon optimize for anti-trust action? By API-fying its own infrastructure. 'Anyone who doesn't want to do this will be fired. Thank you! Have a nice day!' is how Jeff Bezos communicated the decision. Amazon has steadily been building 'anti-fragility' by introducing 'stressors' into its system but under its own terms. The API first approach came in the early 2000s. Amazon has had nearly 20 years to prepare for its own business units to act as independent companies.
The labor union:
The earth's most 'customer friendly' company is at the loggerheads with the notion of 'humane-ness' when it comes to how it treats its employees - particularly, warehouse workers. There are reports about how micro-chunks of rest periods are removed by directing the picker at the warehouse to the aisle where she or he needs to go to, by showing spotlights on those items. Amazon wants robots and not people. Robots can work without catching a break. For Amazon, the warehouse worker problem is temporary. The pandemic could not have come at the right time for Amazon. The labor market has a lot of furloughed retail employees. The labor market will be a buyer's market for a long time. Amazon has the money and the demand to hire them. If there ever was a collective bargaining chip for the workers, that chip now is folded and dropped into the deepest crevices of the Atlantic ocean. But Amazon is all about foresight.
In 2019, Scott Anderson, the director of Amazon Robotics fulfillment mentioned in a facility tour it would take 10 years to fully automate a warehouse workstation. Unlike the 'API or get fired' diktat, Jeff Bezos cannot openly pit technology against humans. So, look for cues that the robot-ification juggernaut is already moving.
And, the cleverness of the argument that some tasks can 'never be fully automated' inside a warehouse is in its deceit. Even at 60% automation, nearly 35% of current costs in a warehouse can be saved. For Amazon, it is not just about cost-saving but about building 'anti-fragility' into its labor-intensive parts that are likely to be disrupted in an increasingly 'socialistic/left-leaning' world that we will get into, after this pandemic.
There is always a McKinsey report at service and here's where they tell you what Amazon will gloss over:
Pragmatism vs. Idealism:
Another trait of Jeff Bezos that I come to appreciate with awe is his pragmatism. Bezos says that all businesses eventually die. It's the job of the executives to delay it. Amazon has been building mechanisms to help the organization prepare for the eventuality and thereby delay it. However, if fundamental believes change, the demise accelerates.
'Consumers need choice at the lowest price' is the fundamental belief that anchors all of Amazon's decisions.
In my earlier article, I had written that counterfeit products from China that you see on Amazon.com are not a bug but a feature. There is a market for those products at the rock-bottom price-points and Amazon will do right by that customer as well. Don't get me wrong - Amazon will not encourage selling counterfeit products overtly but it is not a priority for Amazon to fix the problem either. Amazon settles debates based on what the consumer votes (with their wallet) over what is right or wrong for them or their sellers or vendors.
What if the pandemic shakes "the fundamental belief"?
What if idealism makes a comeback? D2C brands have been appealing to the idealists for over a decade now. 'Locally made', 'clean ingredients', 'transparent supply chain' etc. have been embraced faster by smaller brands and then later, reluctantly by the bigger brands when they see the tides turning. It's not that bigger brands don't know better. There is an innovator's dilemma in some cases. But mostly, the 'total addressable market' for idealism has been small. Even the mightiest trends like 'digital' still affect only 'single-digit' percentages for CPG companies. But they still invest in 'digital transformation' because the future there is clear.
What's the future of idealism, though?
The journey of idealism
Will a single mom in Middle America buy products made in America and turn her head away from 'Made in China' products in the future? Will she do it with the Damocles sword of pay cuts and employment insecurity hanging over her head?
In other words, will pragmatism nix the idealism in its buds?
Unlike the eCommerce world, the real world still has space for competing and opposing ideologies. There will be idealism and there will be a market for idealism. It may even grow. The society has never rewarded idealists immediately. In fact, idealists suffer lonely, depressing ends at the hands of indifference only to be accepted generations after. Change comes slowly and then suddenly.
The world is going to be more nationalistic and local. The government will expound it, embrace it and support it. The government may even get reluctantly socialistic. It is never a good time to be a D2C brand built on idealism. But remember that the journey of thousand miles starts with a single step.
- Ashwin Ramasamy
PipeCandy is a market intelligence platform that tracks the global eCommerce & 'direct to consumer' landscape.
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