Why retailers can't all be Amazon

Bernstein analysts highlight the struggles of retailers attempting to replicate Amazon's third-party marketplace model, citing limited success due to a lack of scale, category depth, and capital intensity. Companies like Ocado, Zalando, and Next have invested in "retail as a service" (RaaS) platforms, but adoption has been underwhelming due to lower margins, a small addressable market, and strategic concerns around outsourcing to competitors. Revenue estimates for RaaS platforms like Next's Total Platform and Zalando's B2B have been significantly reduced, suggesting that Amazon's dominance in this area remains unchallenged.

Analysis

According to a Bernstein analysis, attempts by retailers such as Ocado, Zalando, and Next to replicate Amazon's third-party marketplace and services platform have been largely unsuccessful. The core issue is a failure to overcome the structural and economic advantages unique to Amazon, which commands over 40% of U.S. e-commerce and has a decades-long head start in technology and logistics investment. Comparatively, the tech CAPEX of peers is a fraction of industry leaders, with Next at £50 million and Zalando at €80 million, versus Salesforce at approximately $700 million. The "retail as a service" (RaaS) model has proven to be a lower-margin venture; for instance, Next's Total Platform delivers a 5% EBIT margin, a stark contrast to the 21% margin on its own branded sales. Furthermore, the model is not asset-light as it still requires significant capital for warehousing and logistics. The addressable market is also surprisingly small, with Bernstein identifying only 60 suitable European apparel retailers, as larger brands prefer in-house solutions and smaller ones lack scale. This skepticism is validated by dramatic downward revisions in financial forecasts: FY25 revenue estimates for Next’s Total Platform and THG Ingenuity have both been cut by 68%, while Zalando’s B2B profit estimate is down 60%. Strategic risks, such as outsourcing to a direct competitor and the collapse of platforms like Farfetch's B2B service, further deter adoption, reinforcing the view that Amazon's model is an exception, not a replicable template.

Key Decisions for Investors

• Investors should be cautious of retailers heavily promoting a 'retail as a service' strategy, as the model has demonstrated significant margin dilution and has led to substantial downward revisions in financial forecasts for companies like Next, Zalando, and Ocado.