How Amazon Has Changed Holiday Shopping Rules

It pretty much goes without saying these days that Amazon.com Inc. (NASDAQ: AMZN) has changed the retail business almost beyond recognition. The company’s online store offers more than 350 million items for sale, of which just 12.23 million are sold directly by Amazon. In order for brick-and-mortar retailers to compete, they have to get creative with the products they offer, the prices they charge and the services they provide.

Of course the brick-and-mortar stores have made some adjustments themselves, offering more items online and teasing Black Friday specials earlier, both online and in-store. But the bar keeps getting raised as consumers demand more, again both online and in stores.

One of the biggest changes Amazon has driven is what analysts at Deloitte call the “Prime Effect.” Amazon Prime is an annual or monthly subscription service that began by offering free two-day shipping. The service has expanded because Amazon keeps adding to the features, mostly without raising the price.

The impact on retailers has been dramatic. Deloitte notes:

• Only 42% of shoppers surveyed consider three to four day shipping “fast,” down from the 63% last year.
• The majority (83%) of shoppers consider fast shipping to mean delivery within two days or less.
• Nearly two-thirds (64%) think they should be allowed to order after December 17 and still get free shipping by Christmas Eve.
• Some 71% plan to take advantage of free shipping opportunities this season.

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And shoppers still expect friendly return policies. For purchases made in physical stores, consumers mostly want refund options other than store credit (67%). For items purchased online, consumers mostly want free online returns (82%), followed by the option to return a product purchased online to a physical store (69%) and refund options other than store credit (61%).

All those demands on return policies are a direct result of how Amazon has treated returns.

One thing more traditional retailers have working in their favor is loyalty: brick-and-mortar stores have it (and so do their websites), while online-only sellers lag. According to Deloitte’s 2016 version of its annual Holiday Survey, more than half of consumers (58%) who shop in a physical store are more likely to shop there again, even if the item they’re looking for is out of stock. At an online-only retailer, more than three-quarters (77%) look for the product somewhere else.

Competition for consumer dollars should be a bit tougher this year, with just 17% of consumers saying they expect to spend more this year than they did last year. For the 2015 holiday season, 19% said they planned to spend more than they had in the previous year.

Rod Sides, Deloitte’s vice-chairman, said:

Retailers may also feel the effects of industry fragmentation and volatility that we have seen accelerating the last few years. The onset of new digital retail entrants is generating a lot of experimentation. Nearly three-quarters of respondents said they plan to try new stores or websites this holiday season. While people are just dipping a toe in the water with actual purchases, if those retailers offer positive, unique experiences, they may be rewarded with a larger share of customers’ wallets in the future.

What that adds up to is even more competition from online-only retailers and an even tougher environment for traditional retailers. For consumers, it might well add up to some pretty sharp discounts as the shopping season nears its end.

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