1. What are the benefits and limitations of Amazon’s online retail model?
The benefits of Amazons online retail model is that it allows consumers around the world to shop 24 hours a day from the ease of their computers, without having to physically go to the stores.
Amazon’s stated mission is to be a place where “people can come to find and discover anything they might want to buy online.” Its key pillars of lowering price, offering convenience, expanding selection, and increasing availability are interrelated in what the company calls a virtuous cycle, and together make up the foundation of the fabulous growth that has taken Amazon from a bookstore started in a garage to a multi billion retail machine. Amazon’s direct-to-consumer online model allows it to keep its inventory in a small number of strategically located large warehouses, letting the company offer a vast selection of goods (removing the granularity risk of relying on any particular product line) and without the capital investment and inventory risk that traditional brick and mortar retailers face.
In comparison to brick and mortar retailers, whose input costs (e.g. rent, utilities, and labor) generally rise over time, Amazon and other technology-dependent internet retailers reap the benefits of technological progress as computational power, bandwidth, and data storage technologies all improve in quality and decline in cost over time.
In addition, due to sophisticated inventory forecasting, fast inventory turns, and overall operational efficiency, Amazon has managed to build a retail business with a negative operating cash flow cycle, which means Amazon gets paid for products by customers before they have to pay their suppliers for the goods. Working capital has effectively become a source of investment cash for the company.
The major limitations of Amazon belong to two main groups: technical and transportation. In many areas, telecommunications bandwidths are insufficient - a willing consumer...