In working with retailers, we inevitably get around to talking about Amazon.com, the nation’s largest online retailer. There are many lessons to learn from Amazon (a topic for another day), but there are also things they can do that no one else can. Why?
This chart is from Jared Spool’s excellent presentation, Revealing Design Treasures from the Amazon.
On average, Amazon turns over their stock every 20-days, which is pretty insane for a retailer. They accomplish this with incredibly sophisticated operations systems and a huge volume of transactions.
This lets Amazon have what is called a ”negative cash operating cycle,” meaning that they get paid by their customers before their bills are due to their suppliers. As you might remember from Economics 101, a dollar today is worth more than a dollar tomorrow; in the interim, you can do stuff with your dollar. Cash is king.
The negative cash operating cycle is why Amazon can beat every other retailer on price, and their website reflects – among other things – their price strategy.
Most other retailers (as in, those not named Amazon or Walmart) are pursuing a strategy that doesn’t revolve primarily around price, so they should be careful following Amazon’s lead too closely. Better to pick and choose the practices that translate best.