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Bold Impact of E-Commerce! Changing the Face of Retail

Amazon is one of the largest companies in the world in terms of capitalization. It has sparked a revolution in e-commerce emulated by startups the world over. It is the benchmark for US e-commerce companies. However, there are some business analysts who consider its continuing growth as a reason for the decline of traditional retailers.

However, Amazon is not a single service company. It is not only into online retail but also into several other products including cloud services and premium retail stores. Amazon’s revenue growth is because of a lot of these factors, including the growth of Amazon Web Services (AWS) that grew by more than 42% to $17.1 billion in 2017. The Amazon US operations, excluding AWS, grew by more than 30% to $107.3 billion. This amount includes e-commerce, subscriptions, and product sales.

Growth of E-commerce in the US

Notably, Amazon is the largest e-commerce site in the US. For 2018, an estimated 230 million Americans will buy online, resulting in $474 billion in sales. This figure includes retailers like motor vehicle and parts dealers, gas stations, supermarkets, and grocery stores. These segments do not have a large impact on e-commerce because online sales comprise only a small percentage equivalent to roughly 9% of total retail sales. Excluding market segments with limited online sales, e-commerce percentage would increase to 20%.

E-commerce is still growing. However, there are some segments of sales where it might not be able to totally replace. One advantage of e-commerce companies is their capability to diversify their product and service offerings, and to do it quickly. This is either through concessionaires or partnerships with established brands.

Traditional Retailers

Contrary to trends, brick-and-mortar shops are not going to disappear anytime soon. This is especially true for groceries, including fresh produce and canned goods. People still buy from traditional retailers. About 78% of American adults regularly purchase from traditional stores. In comparison, only 5% make more than six online purchases annually. In addition, only about 10% to 15% of US adults buy online at least once a week. This results in online stores achieving less than 2% share of the market for groceries and produce.

Speaking of market shares, it is true that year-on-year growth of supermarket sales is a very low at 2%. Even with online shopping growth of 14%, the growth in sales for stores is still at 2%. This indicates how small the impact of online grocery shopping is.

Traditional markets and stores are alive and well. It is the growth for the different segments that are deceiving. Shares of online groceries sales grew from 1.4% to 1.6%. Depending on how you look at it, either the share grew by 0.2% of the total or a 14% growth in market share. This is equivalent to $1.6 billion in additional sales over the previous year. In comparison, the sales from physical stores grew by $16 billion. The overall growth of 2.2% was historically low for the whole retail industry. Mom-and-pop corner stores and convenience stores, as well as the large warehouse clubs, will be able to maintain their size, as they feel no effect from competition online. Overall, there is still a lot of room for growth for both traditional and e-commerce stores.

Jobs and Sales Growth

Impact of E-commerce and reatil sales wolrdwide from 2014-2021
E-commerce worldwide sales

The percentage growth of e-commerce sites is also cited as a reason for the loss of jobs in traditional stores. There have been large traditional stores that have laid off personnel or have closed shops. In their stead, there are more online startups trying to fill the void. Even if stores are closing, the total sales figures for the industry is growing because of online stores picking up the slack.

However, even with more online stores operating, there are less people being employed in retail. The differences in managing these businesses explains the difference in numbers. E-commerce companies have increasing sales, but they employ fewer people. The productivity of these smaller companies is greater compared to that from larger brick-and-mortar companies. E-commerce sites sell more goods per employee than comparable traditional stores. They do not need to hire the same number of people as traditional retailers.

Large brick-and-mortar companies are trying to expand their offerings to meet the online competition. These companies have started offering their products online. Those that are not successful in adapting either slow down or are bought by larger competition. Nowadays, the larger competition is probably an e-commerce company looking to expand their market to offline sales. Amazon recently bought Whole Foods and they are set to resuscitate the fortunes of the retailer famous for their healthy and sustainable product line.

Amazon and Retail

Recently, Prime Whole Foods Market introduced discounts to Amazon Prime members, allowing them an additional 10% discount on sale items as well as exclusive offers on other products. The discount has been rolled out to stores in 23 states. Whole Foods has 484 branches, of which about half already implement the discount. Amazon has also expanded free grocery delivery for Whole Foods stores in Baltimore, Boston, Philadelphia, and Richmond, making the two-hour service available to Prime Now subscribers in 14 cities. Prime Now subscribers can avail of free two-hour delivery for orders worth than $35, in some branches in Georgia, Maryland, Massachusetts, Pennsylvania, California, Texas, and Colorado.

Last year, Amazon opened a cashier-less store in Seattle. This is an operating store and laboratory where Amazon members can go in, browse, bag the products they want, and leave the store. The payment is automated with the use of cameras, and AI for the payment system.

The Whole Foods acquisition was Amazon’s way of getting an immediate entry into the retail market. Amazon’s market does not cover a large part of the retail market. For instance, the food and beverage industry is worth more than $1 trillion annually, and yet Amazon has no sales in this segment. With the purchase of Whole Foods, Amazon now has brick-and-mortar presence in important markets. Whole Foods also has a strong following among its customers.

The acquisition has also created a gateway making it easier for non-subscribers to sign up for Amazon Prime. It is a painless way for Amazon to attract more Prime members. Whole Foods is also expanding its reach. It has an additional 38 stores under construction, as well as another 365 smaller format stores under construction.

Impact of E-commerce and future trends

Statistics show that from 2001 to 2016, department stores lost 25% of their jobs, equivalent to 448,000 workers. Warehouse clubs and similar stores increased employment by 80%, equivalent to 841,000 workers. The retail industry had a flat growth but still managed to hire a net 645,000 new jobs. E-commerce, in contrast, had an increase of 334% over the 15-year period, which is equivalent to 178,000 workers. It is noteworthy that 75% of all e-commerce companies only had three to four workers each.

These small startups will continue to have a small number of employees. These people will contribute a larger percentage to their company’s bottom line per capita compared with employees of traditional stores. Not all small e-commerce sites would want to grow to the size of Amazon as they are content to have small boutique operations with high volume sales. At the same time, the expectation is that the trend of more online companies opening will continue, and they will also continue to have only three to four employees.

E-commerce is the future of retailing. However, most startups will be small and would continue to comprise the bulk of e-commerce sites. E-commerce is still in its infancy, and its growth will continue to outpace the rest of retail.

Baidu, China’s Autonomous Vehicle Underdog

Elon Musk’s Tesla is always at the top of people’s minds when talking about self-driving cars. But in China, Baidu is steadily emerging as Asia’s leader in the development of autonomous vehicles. As early as 2020, experts estimate Baidu to surpass international Artificial Intelligence giants like Tesla and Google.

The Android of the Auto Industry

Baidu created the Apollo project, an open-source platform designed for autonomous driving technology. Apollo is hailed as the Android of the auto industry as it allows third parties to develop apps. This generates more interest among developers and consumers. Similarly, Baidu wants Apollo to establish a democratic operating system that manufacturers and developers can freely build upon.

Baidu is the brains behind its autonomous vehicles. It entrusts its partner original equipment manufacturers (OEMs) to work on hardware, marketing, branding, and customer management. Vehicles are then assembled without Baidu having to increase its research and development spending.

Collaborative Data Mining

Baidu is currently working with about 100 global partners—automotive parts suppliers, OEMs, chip manufacturers, and other tech companies. This extensive network empowers Baidu to fill in gaps in driver data from road testing and simulations. While Baidu is a frontrunner in high-definition mapping and AI, it tarries behind competitors Tesla and Waymo in driver data.

Within the Apollo platform, Baidu launched Apollo Scape, a vast open-source data set that bested its contemporaries Kitti and CityScapes. It breaks down video images pixel by pixel for granular processing. When annotated and synthesized, these images help self-driving cars discern its surroundings—from traffic lights, road signs, distances, and even weather. These autonomous cars effectively recognize complex road conditions and drive safely and accordingly.

Chinese Advantage

The Chinese government aims to be a global leader in AI by 2020. It eased regulations to accelerate AI and autonomous vehicle commercialization and to allocate more and longer roads for large-scale public-road testing. The Chinese Ministry of Science and Technology has also cited Baidu as the leader in autonomous driving.

Domestic Competition Rising

Major tech players are cropping up in China and entering the self-driving industry. Didi Chuxing, China’s ride-sharing service, acquired Uber China in August 2016 and has also expanded to Mexico, Japan, Brazil, and Taiwan. Consequently, it has its own source for data with over 20 million vehicles on the road. It can also further monetize its self-driving cars through for ride-sharing, rather than directly selling to consumers.

Baidu, the Automotive AI Underdog

Alibaba, Tencent and their tech partner Baidu, China's AI company
Alibaba, Tencent and their tech Baidu

Didi Chuxing has also built a laboratory in Mountain View, California, where it tests self-driving cars on an undisclosed capacity. It is also working with a startup to develop an all-automated taxi service. Baidu, on the other hand, has never tested in US roads.

Other Chinese leaders noted by the Ministry of Science and Technology, Alibaba and Tencent, have only recently entered the industry. In March 2017 Alibaba started working with different AI experts for its lab. Tencent also announced its self-driving tech project in November 2017, and recently obtained permission for testing in Shenzen.

Ultimately, the success of any of these companies relies on harnessing diverse driver data and creating high quality software. If Baidu is able to mobilize all of its verticals, it will easily edge out all its competitors across China.

Baidu’s Bold Continued Expansion

The Company is allotting substantial capital to fund startups to work under the umbrella of the Apollo partnership alliance. The company launched the Apollo Fund in September 2017, which dedicated $1.5B for 100 autonomous driving projects well into 2020. It financed software developer Smarter Eye for $15M to focus on advanced driver assistance systems as one of its many investments.

The company has also noted a significant shift in its focus and expenses. Baidu’s budget for selling, general, and administrative expenses are being divested to research and development. As they ramp up on R&D, there will be a year-on-year decrease in its SG&A expenses.

Baidu is partnering with domestic and international companies for a number of initiatives. It focuses on vehicle testing with various autonomy levels, self-driving vehicles for disabled and challenged seniors, and autonomous tourist buses, among others.

The realm of autonomous driving continually expands as more partnerships and collaborations develop, and the applications of autonomy are outlined for commercial consumption. With a strong support from the Chinese government and its network of collaborators, Baidu is advancing as an Asian trailblazer that is set to make its mark in the global autonomous transportation landscape.