It is always dangerous to interpolate from personal experience to wider political, economic or social impacts, much less to investment views. Sometimes we must make an exception however…

Earlier this month here in London was looking to buy a birthday gift for their 10 year-old son. They had been with friends over the weekend and had seen the latest laser tag guns that no longer need an additional receiver that could get lost or broken (made by Hasbro, the US toy company, as they could not help noticing). However, they got busy with work and forgot until the day before. We have all been there…

Given our strong views on digital transformation, Amazon was the first port of call. It had the toy but it was too late for delivery for the birthday. Hamleys, the Harrods’ of toy stores, is on Regent Street a short walk from our offices in Carlton Gardens, so that appeared the obvious solution. Hamleys has a website of its own and the price listed seemed reasonable for the convenience. It was late in the afternoon and the store was open until 9 pm. However, it was impossible to call and ask if they had it in stock because the customer service closed at 5 pm and the website did not provide the information.

Walking to the Hamleys store, five somewhat cheerless staff members had five different answers as to where to find the toy. After not quite half an hour of walking through the store and asking several more staff members, it was finally located. With a feeling of relief that will be familiar to most us, they bought it without inspecting the price. However, being focused on quality and value as we always are, as they walked out of the store, they looked up the item again on Amazon and were stunned. A toy that was available on Amazon for £24.99 for next day Prime delivery was sold in-store for £65.99.  They quickly hurried back in and spent another half an hour returning it.

The next morning they had festive birthday breakfast and went on to the Amazon website to order not one but two of the toys (four guns in total) together. Tellingly, the 10 year-old was as thrilled if not more to be able to choose and buy it himself, and he walked off happily telling his friends at school about his birthday gift, which was as real to him after seeing the order placed on Amazon as it would have been if he had it in front of him. The laser tag guns got delivered the next day (a Saturday) and the house has been in chaos ever since…

The whole experience was a stark illustration of the strength of Amazon’s business model and the ongoing disruption it is causing for traditional retail. We wrote earlier this year that for Jeff Bezos, ‘your margin is my opportunity’. The toy industry has been the second most affected after Amazon’s original target, media, music and books. 53% of toy sales in the US are now online.  Toys’R’Us and a number of retailers are already gone and it is hard to see how Hamleys will survive with the customer proposition we experienced above.  It failed on every aspect of the sales process apart from immediate availability, and the price difference was so significant that even a Londoner used to premium pricing thought it was excessive. Amazon has just announced that it is moving to free next day delivery for Prime members, which is a testament to its execution capability and will further extend its competitive advantage.