How Amazon is steamrolling Germany's retail market

amazon dominance german retail
Good job. Source: DPA

Amazon is continuing to strong-arm large sectors of the German retail market, analysts warn. A new study seen by Handelsblatt outlines how scores of independent retailers are becoming dependent on its third-party e-commerce platform, Marketplace.

The US giant already accounts for almost half of Germany’s online retail, generating $17 billion (€14.8 billion) in sales in Germany in 2017 — about four times as much as the top two department store chains, Karstadt and Kaufhof, put together.

Amazon’s success is founded on an easy-to-use website, a gigantic selection of products, fast and cheap shipping, and a liberal returns policy that has instilled confidence with customers. But the power poses long-term risks, industry insiders warn. “Such monolithic dominance can’t be in the interests of the retail sector,” said Dominik Dommick of Payback, who compiled the study with the University of St. Gallen and consultancies Etribes and Factor-A.

When third-party sellers use the site, they get access to hundreds of millions of customers. But the study found that as Amazon grows to dominate a category, third-party sellers play less of a role. The research is aimed in part at encouraging sellers to seek alternatives to the e-commerce platform. Mr. Dommick warned that third-party retailers, while making sales, are providing Amazon with data the company can exploit for its own purposes.

It’s true that a substantial part of the billions in sales being generated through Amazon goes to small retailers using the site. But Mr. Dommick of Payback warned: “Vendors who decide to sell through Amazon Marketplace quickly enter a fateful relationship of dependence in which Amazon will emerge as the winner in the long term.”

amazon market share germany

The study fuels suspicions currently being investigated by the EU Commission that Amazon may be using the data to improve its own product offerings. Vendors have been complaining that products that sell will suddenly pop up in Amazon’s own ranges, undermining their business. The EU is checking whether that constitutes an abuse of Amazon’s market clout.

Cologne-based market research institute IFH said Germany was undergoing an “Amazonization of consumption.” IFH board member Eva Stüber said Amazon had become so entrenched in the consciousness and the consumer habits of shoppers “that the path to the customer is practically being cut off for other suppliers.”

Breeding dependency

On Marketplace retailers lose direct access to buyers, which makes them increasingly and dangerously dependent on Amazon’s e-commerce platform, critics say. In the end, traders will find it virtually impossible to gain new customers themselves.

Amazon has used the knowledge it amasses on customers’ needs to develop its own product lines under labels such as Amazon Basics, which is among the five most prominent brands on Amazon, according to the study.

And the company also wins customers with its Amazon Prime subscription service that offers free shipping and entertainment streaming. IFH says Amazon customers are using the platform with ever-greater frequency. In 2004, the average Amazon buyer made eight purchases a year — in 2017, it was 40.1.

The Federal Cartel Office has received numerous complaints from retailers who feel badly treated by Amazon and its business terms. The watchdog has already pressured Amazon into dropping a clause that prohibited vendors from offering their goods cheaper anywhere else. Amazon is also continually plagued by labor strikes in Germany; union Verdi wants a unified wage agreement for the e-commerce giant’s 16,000 workers here.

Driving sales to Amazon

Its Alexa voice assistant is fueling its power by channeling customers to Amazon products when they say “Alexa, order me new coffee capsules.”

“The voice assistants could turn into an existential threat for retailers. The ones who aren’t present there soon won’t be in the market at all anymore,” said Achim Himmelreich, an e-commerce expert at corporate consultancy Capgemini.

Germany is a major focus for voice assistant technology. German was Alexa’s first foreign language, and Amazon has a sizable unit here researching artificial intelligence and voice recognition.

But despite all its growth, there are still some segments where Amazon isn’t top dog in Germany. Though Amazon accounts for one-fifth of book sales, the country’s fixed book prices have kept it from utterly decimating local bookstores.

One in five euros spent on books in Germany goes through Amazon, and its market share of consumer electronics as well as sport and leisure goods is 16 percent. Those figures refer to total sales, both online and store-based.

Ceconomy, which runs the MediaMarkt and Saturn electronics chains, had to issue a profit warning a few weeks ago because competition from Amazon has been forcing it to keep offering discounts. Toy shops across Germany are also buckling under the pressure.

Attacking the holdouts

Amazon’s market share for fashion and luxury goods is stuck at about 1 percent, and the average price of goods sold stands at just €28.25 — a strong indication that Amazon hasn’t gained a foothold in the high-value fashion trade. German online fashion retailer Zalando would like to keep it that way. But the costly battle contributed to the quarterly loss Zalando reported on Tuesday, and its share price dropped in response.

In the grocery trade, Amazon’s share is below 1 percent despite the launch of its Amazon Fresh delivery service in Berlin, Hamburg and Munich. Consumer rights groups are hoping that the Americans will break the German retail oligopoly of Rewe, Edeka, Aldi and Lidl. Their wish may come true: Amazon’s grocery sales in Germany rose 54% from 2016 to €200 million in 2017.

Grace Dobush, Dana Heide, Joachim Hofer, Christian Kapalschinski, Florian Kolf, and Georg Weishaupt of Handelsblatt contributed to this report. To contact the authors: grace.dobush@gmail.com

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