Amazon.com (AMZN +3.49%) will record over $100 billion in revenue this year for the first time in its history, joining an elite group of American companies in the process. For a company just over 20 years old, that feat is a remarkable achievement, but many overlook how Amazon's success has come in spite of the competitiveness of its industry.
After all, online retail has incredibly low barriers to entry. Essentially, all you need is a website and way to ship goods to customers. Amazon already faces a wide range of competition from specialized sellers like Etsy, auction houses like EBay, and brick-and-mortar giants like Wal-Mart, but the ease of entering e-commerce has lured two high-profile start-ups that are set to launch this year. Both are founded by well-known entrepreneurs and see Amazon's $100 billion in sales as ripe for the picking.
Ron Johnson's shot at redemption
Ron Johnson should be a familiar name to those who follow business news. He's the man who led J.C. Penney to an epic implosion during a year-and-half as CEO. His attempt to revamp the aging department-store chain did not go according to plan, to put it mildly, as sales fell 25% and the company put up losses of over $1 billion a year. When Johnson was finally ushered out in 2013, he left a company on life support for returning chief Mike Ullman. Today, J.C. Penney is in a healthier position, having resorted to old tactics, but is still far from profitability.
Before coming to Penney, Johnson was regarded as a retail wizard, the man who led Apple's retail strategy, guiding that chain of stores to the highest sales per square foot in the industry and coming up with innovations such as the Genius Bar.
Now, in his third act, Johnson is seeking to reinvent e-commerce with a start-up called Enjoy. Unlike Amazon.com or other online retailers, Enjoy intends to sell products and assistance at once. Its partnered with 11 companies including AT&T, Samsung, and GoPro, whose products will be hand-delivered by an Enjoy employee who then assists with installation. The idea has some big-name backing as Tom Lydon, President of Global Trends Investments, called it "a great idea," citing the discomfort of many consumers dealing with electronics. The company has $30 million from venture capitalists and launched this week in the Bay Area and parts of New York. Additionally, it promises to offer prices equal to what consumers would find in a store, and will also provide repair and installation service for products consumers already own for a separate fee.
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You may not have heard of Marc Lore, but he has shaken up Amazon and online retail before. Lore founded Quidsi, the parent of Diapers.com, one of several websites that specialized in a product category and did it better than Amazon, stealing business from the grand-daddy of e-commerce. Like it did with Zappos and plenty of other smaller competitors, Amazon bought Quidsi in 2010, taking Lore with it. After two-and-a-half years working under Amazon, Lore split and is now launching yet another challenger to the throne. Jet.com, his newest brainchild, is an online wholesale membership club, similar to Costco, that will offer customers millions of products at prices 10 to 15% lower than anywhere else online for an annual of just $49.95.
The website is only open to insiders currently, and many think the idea could be huge, based on Lore's track record and $80 million in funding. Lore plans to beat Amazon on pricing by sacrificing delivery speed, which he said is less important to a subset of customers simply looking for the lowest price.
Why Amazon is so hard to dethrone
Though many assume Amazon's biggest strength to be its low prices, the company has built tremendous levels of customer loyalty during its 20 years in business. It regularly ranks among the top retailers in customer service, and its loyalty program, Prime, has attracted tens of millions of members, offering benefits that no other company can match.
Its sales keep growing because it expands to new businesses and continues to attract new customers to its platform. It also has thousands of relationships with third-party retailers that give it a price and selection advantage that will be hard to match for start-ups like Jet.com or Enjoy.
Those two start-ups may be able to pick off some customers with their specialized models, but considering Amazon's size, it will be difficult for either of them to reach the scale to threaten Amazon's empire.
