Stocks

The Amazon Effect: Traditional Retailers Turn To Facebook Inc, Google Inc

Amazon has shaken up the retail sector and sending more and more retailers running with their proverbial tails between their legs and looking for ways to fight back. But the online retailer is doing more than just growing its business. Apparently it’s indirectly giving Facebook, Google and other online ad platforms a boost as well, thanks to traditional retailers’ attempts to combat it.

The Amazon Effect: Traditional Retailers Turn To Facebook Inc, Google Inc

Hope for traditional retailers

Interestingly, as Amazon steals share from traditional brick-and-mortar retailers, it’s also planning to expand its own physical presence with even more stores in more cities. The company must see some value in having a brick-and-mortar presence, despite the fact that it got where it is now by selling products cheaply online, so all hope is not lost for traditional retailers just yet.

Wal-Mart managed to beat expectations for the first quarter at a time when department store chains like Macy’s are underperforming. This indicates that consumers continue to be cautious with their money at a time of economic uncertainty, although there are still enough shoppers who like putting their hands on items to touch and feel them before they buy.

So the fact that Amazon sees value in having physical stores means that brick-and-mortar stores do have an advantage in having physical stores – even if they haven’t yet figured out how to use this advantage. Wal-Mart must be doing something right though.

Facebook, Pinterest as weapons against Amazon

In a report dated May 18, Morgan Stanley analyst Brian Nowak and team highlighted how traditional retailers are trying to battle the Amazon effect through online advertising on Facebook, Google, Instagram and Pinterest. The big problem major retail chains are facing is that Amazon is growing in all categories, and there seems to be no end to CEO Jeff Bezos’ ambitions. The online retailer is now growing its share in apparel, and in response, some luxury brands like Calvin Klein and Tommy Hilfiger are moving their sales to a first-party basis online to combat falling sales in brick-and-mortar retail stores.

Helping big brands and traditional retailers hone their online efforts is turning into big business, according to the Morgan Stanley team. RetailNext, BigCommerce and many others are all increasing their focus on helping them use Facebook and Instagram to drive e-commerce through Dynamic Product Ads, “Shop Now” buttons and similar tactics. They said this trend should continue to benefit Facebook for quite some time. They also explained that major apparel brands are beginning to see Instagram as a digital substitute for magazine advertisements.

They also said Pinterest stands to gain a lot form this trend, describing it as “acting like a personalized magazine with direct transaction potential.” The social network launched its buyable pins feature less than a year ago, and now more than 20,000 traditional retailers are selling products using that feature.

Amazon modifies shopper behavior

For its part, Amazon is also moving with new products like Payments, which aims to smooth out the online payment process. Guess Jeans and other major brands are beginning to partner with Amazon Payments on their websites, although Nowak and team said most retailers and merchants are reluctant to let the online retailer power transactions through their websites because they’re concerned about it analyzing their product and transaction data. They also describe Prime Now as Amazon’s “next level of behavior modification.” The service is now available in 27 U.S. metropolitan areas and offers more than 25,000 products.

Amazon shares fell by as much as 0.5% to $693.98 during regular trading hours on Thursday.