E Amazon's Acquisitions Create Adverse Reactions

I’m not of the opinion that any traditional brick and mortar retailers are investible at this time. That does not mean they are not tradable for months or even a year at a time as I’m forced to recognize the term investment is largely subjective. The end game for retail is likely a foregone conclusion: There will always be storefronts just as there will always be e-commerce. Let’s face it, nearly 20 years into the e-commerce era the retail segment still only accounts for less than 10% of total retail sales. How long will it take to capture the next 10% of retail sales and is there a limit to the total addressable market for e-commerce sales that largely never, never gets discussed. When we look at how long it has taken to capture less than 10% of retail sales by the e-commerce segment, I would think this is more a red flag for the segment than analysts and the media have considered to date. So how much market share each segment will capture or maintain remains undetermined at present. For now, however, investors would be wise to exercise caution when investing or trading the major retail names. 

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Disclosure: I am long TGT and COST.

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Harry Goldstein 2 years ago Member's comment

Good comment thread. Another good thread to read with a similar discussion is here: www.talkmarkets.com/.../winner--losers-from-amazons-proposed-purchase-of-whole-foods

Carol Klein 2 years ago Member's comment

#Walmart acquired #Jet to compete with #Amazon. Now Amazon wants to acquire #WholeFoods to compete with Walmart. I don't think Walmart's acquisition did a think for them. Hopefully Amazon's will work out better for them $WMT $AMZN $WFM

William F. Lampe IV 2 years ago Member's comment

That acquisition was only completed in late September of last year. I think it will take time for results to really show for Walmart, so I wouldn't write off that acquisition yet... Not to mention that Walmart payed approximately 20% of what Amazon paid.

Carol Klein 2 years ago Member's comment

Walmart acquired Jet to get a very much needed technological edge over Amazon. But have you ever shopped at Jet? I have. It pales in comparison to Amazon's technical knowhow and breadth of features/reach. There is no comparison. In fact overall I found Jet's website to be buggy, boring and confusing. And shipping is as slow as Walmart. I saw no advantage to the acquisition.

Do you see it differently?

Fabrizio Galvez 2 years ago Member's comment

I definitely agree, i think that $AMZN is just so much better at what they do that it is sort of insulting to compare them to Walmart. I always say that Amazon is sort of like $APPL in the sense that they may not be the first to do something, but they are always the ones to make it better, and this will definitely be the case.

Seth Golden 2 years ago Author's comment

The food and logistics supply chain is dry complicated, cumbersome and wildly expensive. I like the comparison offered, but it's highly unlikely that in this particular case, "better" is going to be the outcome.

William F. Lampe IV 2 years ago Member's comment

I personally found Jet to be relatively easy to use and visually pleasing, but that is more personal opinion I suppose.

My point was more about how it's too early to tell at this stage. Anything could happen with Walmart and Jet, or Amazon and Whole Foods, so I don't think it's prudent to write off one of their acquisitions

Carol Klein 2 years ago Member's comment

It's been a while since I shopped at Jet. But I found their process of getting extra savings by buying items from similar warehouses to be very confusing. Overall it was difficult to understand how much I was paying for each item. And I found those numbers often changed. For instance, if I added an item to my cart it would list thousands of items that I could get cheaper. But wanted they didn't mention is that the savings would only apply if I added ONE item, I would not get more savings by adding more than one item. Also, if purchasing many items, it was hard to keep track of which item was linked to savings on which items. So if you deleted an item from your cart later, you might lose the extra discount on something else which may have been the only reason you added it to your cart in the first place.

Without the additional savings, every item I looked at was cheaper on Amazon. Just a very confusing model over all. And that was the only technological enhancement I even saw. Otherwise the website was extremely basic. The search function was dismal and their item selection was pretty limited and ever changing. So there were many times I bought an item I liked and wanted to re-order it, but when I tried, I found they no longer carried it.

I will say they had very good customer service though. Something Walmart could benefit from but which I fear might work the other way around. At least Walmart's customer service is as poor as ever. Personally, I wouldn't mind if Amazon put Walmart out of business with the exception that competition is good for the consumer.

William F. Lampe IV 2 years ago Member's comment

Don't forget the logistics network that $AMZN is bringing to Whole Foods! That being shared between the two companies could reduce costs for both of them.

Seth Golden 2 years ago Author's comment

Grocery logistics is far different than what Amazon understands or has experienced proficiency with. That is what they are actually acqui omg in the deal, not bringing to the table. On a mass scale Amazon doesn't have scaled expiry, chargeback and DSD experience as they don't have those busines relationships or operations.

Angry Old Lady 2 years ago Member's comment

"Grocery logistics is far different than what #Amazon understands or has experienced proficiency with." = Hitting the nail on the head. $AMZN $WFM

Bill Johnson 2 years ago Member's comment

Seth Golden is exactly right. This is uncharted territory for Amazon. I'm not saying they will fail, but I think they are going to have a harder time of it then they expect.

Bruce M. Knoth 2 years ago Member's comment

Amazon does sell food online, so I would argue that they do have a lot of experience. And they certainly have the $$ to hire more people with more direct experience.

Seth Golden 2 years ago Author's comment

selling food online and doing so successfully are two different indicators. Their market share clearly indicates they don't have good experience and know how or likely the right skill sets and personnel.

William F. Lampe IV 2 years ago Member's comment

I agree with Knoth, they have started #AmazonFresh, and their partnerships with shipping companies can help them expand with less growing pains. That, and they have some of the greatest minds in the field of supply chain! Who knows what other knowledge and experience those minds hold.

BreakingBad News 2 years ago Member's comment

Actually Amazon started their own shipping company. But I would think super markets use their own workers as delivery men rather than using UPS.

William F. Lampe IV 2 years ago Member's comment

But look at their same day shipping roll outs: the distribution network is already very promising!

Seth Golden 2 years ago Author's comment

The grocery business is highly complex and complicated to maintain, nonetheless maintain profitably over extended periods of time. It's one thing to sell groceries that are dry goods as Amazon has and will continue to do, it's an entirely different thing to sell cold, frozen and dairy foods. Expirations, shelve lives and the necessity of sourcing locally is NOT in any way shape or form something Amazon has done on scale or with any proficiency along the lines of what I've noted within. Moreover, there is a profound reason as to why the major beverage companies have a dominant position within the grocery supply chain inclusive of DSD operations. Again, this is not something that is available to Amazon and obviously as such Amazon has NO experience with this such aspect of the grocery business. The beverage and snack business make the grocery business profitable, most everything else outside of meats is considered minimal profit to losses. Amazon likely understands this as it has been trying for many years now to expand its grocery business to include greater sales volumes, but without a DSD, high volume business it has been extremely difficult. So you buy Whole Foods with local sourcing DSD operations and all that comes with the business of selling cold, frozen dairy goods. Having said all of that, Amazon will still likely not be successful without large scale modifications to the Whole Foods business model as Whole Foods has a very finite consumer base. Again, Amazon likely understands this but most importantly...and here is the biggest takeaway as we share this experience going forward: Amazon doesn't care. Amazon doesn't care because its shareholders don't care. We're talking about a company that went unprofitable were over a decade and with the stock price doing nothing but appreciating over that time period. So while we banter and rationalize this acquisition whichever way we choose to do so, no matter what the outcome, shareholders will likely continue not to care as the core Amazon business has proven disruptive and, now, more profitable than ever. Maybe the real question is can Amazon do no wrong? Thank you all for the comments and sharing!

William F. Lampe IV 2 years ago Member's comment

I can't agree that Amazon and it's stockholders do not care. Amazon has had those long periods of operating on losses in order to innovate and expand, which has shown tangible success! As for the DSD operations, you have a great point, and much more experience looking into this industry than I, however looking back at amazon's expansions into new fields, I find historical precidence to back up my feeling that they will successfully find a way to set up those local DSD connections, or work around their lack of them.

I have to thank you for responding to my comments as well Seth, this has been a great discussion!