Online Retailing: Amazon vs.

Argos Capacity

UP614561 24/04/2013

Online retailing is a contemporary and completely innovative type of industry that has taken retailing to a new dimension. Not long ago, companies were absolutely dependent on "in-store" interaction with consumers in order for the product acquisition to be completed. Recently, the internet has become a reliable and efficient way of buying products given that consumers grew confidence towards online shopping's consistency. Amazon is one of the powerful e-commerce companies that are exceedingly successful in the industry, whilst Argos's retailing is only based partially over the internet and mainly on in-store catalogues and is a top retailer in the UK. Capacity is a key aspect for these companies to manage in order for the organisations to operate in a cost efficient manner and is therefore an impact on organisations' capabilities. The capacity of a organization is ultimately the company's ability to perform work1. Additionally, there are different layers of capacity that can be considered. The capacity consists of how much can be produced as well as how quickly can it be conveyed to the consumer in a specific amount of time. This paper will explore the key capacity facts of Amazon and Argos while assessing both companies' strengths and weaknesses in the field. Amazon sells a large variety of products varying from books to jewellery. E-commerce has many advantages for a company in regards to capacity and capacity management. The company consists predominantly of 80 large storage warehouses in 13 different countries and operating with around 65000 employees. These warehouses can measure up to "1.2 million square-feet containing miles of conveyor belts."2 Large depots can hold a significant amount of stock and as a result, the capacity the company comprises in regards to inventory is considerable. Furthermore, the company strategically positions these warehouses near ports and airports to facilitate transport. Being a partly online and mainly in-store catalogue retailer , Argos is the second biggest e-commerce company in the UK, only losing to Amazon. Argos attends around 2.6 million customers per week and is consisted 748 stores across United Kingdom (in 2012). Regarding capacity management, both Amazon and Argos blend level and chase demand strategies in order to cooperate with demand. This is illustrated by the company's flexibility to add labour during times when demand is high, as well as cutting down prices in order to manipulate more sales. Furthermore, Argos had attempted to increase in capacity by entering the Chinese market in a joint project with Haier group. Argos failed to profit and exited the country within four months of operation having invested 10 million pounds. Thus, this is evidence of difficulty for companies such as Argos to grow global capacity given the competition that the company has in online retailing. In addition, Argos has been in the process of shutting down around 75 stores around the UK given the 37% pre-tax profit loss in 2012. This can be linked to the superiority that` Amazon has particularly due to the competitive advantage that warehousing has over having physical selling centres. Amazon has always been e-commerce based, facilitating a world-wide demand and expansion. On the other hand, Argos was first established as a unique in-store catalogue shop. Only now, Home

Lee, Reginald Tomas. "Capacity Management." Essentials of capacity management. New York: Wiley, 2002. Page 1. Print. 2 Graziano, Dan. "Amazon Warehouse: An inside look into worlds largest online retailer | BGR." BGR | Mobile and tech news, reviews, opinions and insights. N.p., 30 Nov. 2012. Web. 21 Apr. 2013. <http://bgr.com/2012/11/30/amazon-warehouse-an-inside-look/>.

Online Retailing: Amazon vs. Argos Capacity

UP614561 24/04/2013

Retail Group who own Argos has created a 5 year renovation plan in order to compete with Amazon with four comprehensive steps3: 1. 2. 3. 4. Transaction from a catalogue based to a digital based company. Offer a wider variety of products, offered to customers at a faster rate. Build up a variety of products that have a universal appeal. Having a flexible cost base (costs that are involved in making a product)

This transformational plan will adapt the way in which the company can perform work, therefore manipulating its capacity to a more contemporary, digital based company who will have more chances of competing in prices and variety as Amazon imposes in the industry. In regards to online retailing, another way in which the capacity of both companies can be compared is through the servers that support the business' online presence. In order for a company to withstand the amount of customers visiting their website it needs to have a certain amount of servers in order for the pages to load rapidly.

Figure 1 Kissmetrics.com "Loading Time"

Figure 1 illustrates the importance of having a high amount of functioning servers as customers are likely to abandon the webpage depending on the loading time. This is especially important in times where the customer demand is significantly higher. To withstand such demand, Amazon has a abundant amount of online capacity, counting up to 450 thousand servers in seven data centres

"Argos To Go Digital, Shut Stores And Reduce Circulation of Catalogue." UK News and

Opinion - The Huffington Post United Kingdom. N.p., n.d. Web. 24 Apr. 2013. <http://www.huffingtonpost.co.uk/2012/10/24/argos-digital-catalogue-earningsretail_n_2007821.html>.

Online Retailing: Amazon vs. Argos Capacity

UP614561 24/04/2013

around the world, but concentrated mainly in North America4. This abundance also gives the company an advantage of offering cloud computing to its customers. On the other hand, the amount of servers that Argos have is unknown, however, through online forums it was found that during holidays many users have encountered a slow operating website which may illustrate the disadvantage that Argos have in comparison to Amazon's5 online capacity. In conclusion, in regards to how well a company can perform work, Amazon is more sophisticated than Argos. Amazon can hold higher inventories in cost-efficient locations to keep their products cheap as well as a higher server capacity capable of offering cloud computing to its customers. This is furthermore supported by the idea that Argos is carrying out a transformational plan which is ultimately to become an e-commerce business more comparable to Amazon. Word Count: 1039

"Estimate: Amazon Cloud Backed by 450,000 Servers Data Center Knowledge." Data

Center Knowledge: Data Centres Industry News and Analysis about Datacenters. N.p., n.d. Web. 24 Apr. 2013. <http://www.datacenterknowledge.com/archives/2012/03/14/estimate-amazon-cloudbacked-by-450000-servers/>.

"Argos Server Status Check." Is It Down Right Now. N.p., n.d. Web. 20 Apr. 2013.

<www.isitdownrightnow.com/argos.co.uk.html>.