Shareholders scanning the horizon for one particular competitor that threatens Amazon.com's (NASDAQ:AMZN) dominance of the e-commerce market can call off their search. Walmart (NYSE:WMT) was its most plausible problem, and while the world's biggest brick-and-mortar retailer has made inroads on the e-commerce front, Amazon is keeping up with Walmart just fine.
That doesn't mean the threat isn't out there, though. It's simply not materializing in the way many might have expected. Rather than one single powerhouse, the threat to Amazon comes in the form of hundreds of smaller e-commerce venues that can each take a tiny, collective stab at online shopping's 800-pound gorilla.
Direct-to-consumer selling is here to stay
Within the past year, according to brand PR firm Diffusion, 2 out of every 5 Americans made a purchase directly from the brand or manufacturer, bypassing middlemen like Walmart or Amazon in the process.
The statistic isn't quite as dire as it might seem on the surface. Most of those shoppers only made a small fraction of their total purchases directly from an individual company, while only 2% of the sample reported they made almost all of their purchases directly with the manufacturer. The frequency of direct-to-consumer (DTC) purchases expected in the foreseeable future also fell from the year-ago version of the survey.
Still, this mode of discretionary spending is on the rise in conjunction with the raw number of DTC options.
Yes, any discussion about the threat the DTC option poses to Amazon must point out how athletic apparel brand Nike has already severed a fairly short-lived relationship with the world's largest e-commerce platform so it can focus on its own retail sales effort. The decision will (if it hasn't already) embolden other brands to make a similar decision to handle their own e-commerce affairs.
It's not just other major brands that might soon mull making their own way that could prove disruptive, though. It's the hundreds of DTC brands never affiliated with Amazon in the first place that are still finding their way. They didn't enter 2019 with a particularly strong grasp of what prompts people to purchase from one venue and not another. But by the end of 2019, they had a much better understanding of the game.
Specifically, many of these brands realize that Facebook ads might cost more than they're now worth, so they're exploring more cost-effective, sales-driving options. Snapchat is proving to be well suited for DTC players. Meanwhile, short-lived partnerships are proving powerful yet free to forge. In September, for instance, pet products brand Bark and cosmetics name Glossier unveiled a limited-edition line of dog toys, co-marketed to each company's customer base.
A sizable dent
Evidence of the DTC industry's maturation is starting to show up in a measurable way too. Shopify (NYSE:SHOP) -- built from the ground up to help companies sell online outside of Amazon's ecosystem -- reported it facilitated $2.9 billion worth of sales between last year's Black Friday and Cyber Monday shopping frenzies, with its platform recording a 61% year-over-year increase in sales for the all-important weekend.
That's still dwarfed by Amazon's figures, and it's only a fraction of the $7.4 billion Adobe says was spent online by U.S. consumers on Black Friday followed by $9.4 billion worth of online shopping on last year's Cyber Monday.
Nevertheless, it's $2.9 billion worth of business that was up for grabs just a few years ago, and it's likely the biggest chunk of that spending would have defaulted to Amazon.com.
Look for an unexpected acceleration
It's not an existential threat to Amazon, to be clear. Diffusion's survey indicates that direct-to-consumer shopping will grow 20% over the course of the next five years...not exactly a show stopper given that less than 10% of the nation's retail industry is now driven by DTC shopping. Diffusion's managing director, Kate Ryan, explains, "people are expecting a bit more maturity from new brands. They want to see the kinks worked out, and they want to see these D2C products in stores before they buy them."
The tepid growth estimate for DTC, however, may be rooted in a history that ignores how much direct-to-consumer brands have figured out in just the past few months and perhaps during 2019's busy shopping season in particular. As it turns out, they've finally learned consumers really are responsive to brands they trust and connect with. As Loren Padelford, general manager of Shopify Plus, put it: "Consumers are coming back to [retailers] and saying, 'We want to shop directly from the makers.' These acquisition channels and marketplaces aren't all what they were cracked up to be, and they aren't giving you the customer experience and relationships you want."
"Customer experience" and "relationships" aren't exactly in Amazon's wheelhouse.
The exact scope or speed of the threat to Amazon still isn't clear, and to the extent it can be measured, it's also still in flux. One thing is certain, though: Neither consumers nor brands need Amazon as much as they used to. They've only just begun to figure it out. The crux of this paradigm shift is ahead.