A PESTEL Analysis of Amazon
In the past few years, the retail industry has seen exponential growth. E-retail has taken the lead and leading the e-retail saga is Amazon. Jeff Bezos has left no stone unturned to make Amazon the most successful e-retailer. Currently, he is trying to add fire to Amazon’s game in Asia. Now that the recession is over, the customers are spending more on retail items and by 2020 the entire retail industry is expected to have grown to $28 trillion. Apart from economic factors, technology has also boosted the growth of the e-retail sector. This is a PESTEL analysis of Amazon discussing the factors in its macroeconomic environment that affect its growth and profits.
The hurdles before e-businesses are not the same as the traditional businesses. Still, there are risk factors that affect the e-retail sector. Amazon is the leader in this sector and it is affected by several political factors. Even for the E-businesses like Amazon and E-bay red tape in the Asian countries can be a big problem. A news report published by Hindustan times highlighted that for any foreign firm trying to do business in India, Red tape and regulatory issues could be a major headache. Taxes and other political issues too are a costly affair. The EU has started targeting the American technological firms and for disputable reasons. While Google was targeted by the EU on anti-trust related issues, Amazon is also being targeted over its e-book deals with EU publishers. These political issues are not limited because there are other problems too that have a political origin. Political stability also leads to economic stability. On the other hand political disruption can disrupt the supply chain and result in reduced sales.
Economic factors are always an important influence on the market and market condition. If the economic condition in a market is good, it will result in better sales and higher profits. The world has recently been out of an economic turmoil. Even in the times of recession, the retail industry was doing well. It is because people will always buy the regular items whether the economy is doing well or not.
Now that the condition of the labor market and the world economy is better customers’ confidence is also boosted. People have more disposable income and these economic trends are going to benefit the retail industry. E-retail grew by a whopping 23% in 2015 and much more growth is expected in this sector in the coming years. However, better economic conditions are also going to add to the existing competition in the market. All these factors indicate that in the coming years Amazon could see much more growth and an increase in profits.
Social and cultural trends are also an important factor behind the growth of e-retail. Online shopping trends have received a boost in the recent years. The increased use of mobile technology and growth in digital technology both have boosted online sales. Now a larger number of people are having smartphones across the world. A large number of people have smartphones with internet connections and they do a lot from their phones including social media and online shopping. Availability of 4G and growth in digital technology has also boosted the sales of the retailers like Amazon and e-bay. Changing consumer demographics are also going to affect the e-retail sector positively. Millennials like to do most of their shopping online. They want the best products, available at least prices and delivered to their doors. This type of convenience is offered only by the e-retailers. So, Amazon has to benefit a lot from the changing consumer demographics and shopping trends. In those regions of globe, where it has not still deeply penetrated the market, the brand must focus on cultural factors to market itself better and to strike a deeper connection with the customers.
Technological factors have grown highly important in the 21st century. Whether it is a traditional business or an online business each has to depend on IT and other forms of technology to deliver better services. Technological innovation has become the key to success in the modern era. Now, apart from internet, Artificial intelligence and cognitive intelligence have also become important to better serve the customers. Customer service is particularly important to keep the customers engaged and better use of technology in this area is even important. The millennial generation cannot be engaged without good customer service. It has also become the key to building customer loyalty. Growth cannot be achieved either without using technology for marketing, sales and customer relationship management. Social media is another areas where retail businesses have to focus to better engage their customers.
Sustainability is also a very important concern for the businesses worldwide. Even the e-retailers have to focus on several areas like packaging, waste reduction, and energy consumption to do business sustainably. Amazon has also invested a lot in CSR and sustainability. It has invested in sustainable packaging, waste reduction, and renewable energy. Apart from that it has also invested in engaging the community in sustainability projects. Renewable energy is a key focus area at Amazon. It has made major investments in this area to acquire complete freedom from dependence on non-renewable energy in the long term.
Legal compliance is also just as important for businesses globally. In any aspect of business, it is important for big brands like Amazon to remain compliant with law. Amazon has a separate legal team to oversee the legal issues and challenges. Apart from labor laws, there are other several areas where legal compliance is essential. Any tussle with law can be very costly for big companies like Amazon. Any mistake can result in big fines and a loss of image. As a result from labor to sustainability, there are several areas where Amazon has to deal with significant legal challenges. Laws can differ from nation to nation and companies have to remain compliant without any excuse. So, law can be a major pressure for any company that is operating internationally. Amazon too has to remain cautious.