Amazon's New Customer
June 20, 2017 11:40 AM Subscribe
Ben Thompson at Stratechery argues that Amazon's recent acquisition of Whole Foods (previously) is all about buying a new "first and best" customer for its logistics ambitions: "Unlike Whole Foods, Amazon has no desire to be a grocer, and contrary to conventional wisdom the company is not even a retailer. At its core Amazon is a services provider enabled — and protected — by scale." In a few years we'll probably be calling this article prescient.
Jeff Bezos interview from 1997. Even back then, he had a handle on what he wanted Amazon to be about and how to scale it. "The Kitty Hawk stage of electronic commerce."
posted by Major Matt Mason Dixon at 11:47 AM on June 20, 2017
posted by Major Matt Mason Dixon at 11:47 AM on June 20, 2017
Amazon. Don't Be Evil.
I have some bad news for you there.
posted by sparkletone at 12:03 PM on June 20, 2017 [3 favorites]
I have some bad news for you there.
posted by sparkletone at 12:03 PM on June 20, 2017 [3 favorites]
and contrary to conventional wisdom the company is not even a retailer.
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posted by indubitable at 12:09 PM on June 20, 2017 [5 favorites]
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posted by indubitable at 12:09 PM on June 20, 2017 [5 favorites]
I said on my Facebook that Amazon wouldn't be able to compete with traditional retailers in the brick-and-mortar space, because all the good real estate has been snapped up already, and it would be very difficult to try to scale up that way from scratch. Buying Whole Foods accomplishes that in a stroke.
I'm sure they'll keep the grocery business going for a while, but presumably their pilot stores and Amazon Lockers have been about testing workable models for attracting foot traffic, and now they'll be able to launch these efforts in major markets at a genuinely competitive reach.
But, it doesn't mean Amazon knows a lot about real-space retailing, and it bears mentioning that even popular, long-standing retailers like Target try this kind of thing and fuck up spectacularly (Target Canada). Amazon can certainly hire people who know what they're doing, true, but this endeavor could kinda go either way. The B&M retail industry is tough, in large part because of the delicate balance between meeting demand and the cost of overhead, and Amazon's forte is in developing a model that is explicitly independent of that requirement.
I mean, whatever Amazon wants to say about their logistics, you can't escape the reality that you can't put everything in your stores that you want to sell, and putting things in stores costs money and takes time, without guaranteeing that you make money. Amazon has spent the last 20 years being the retailer that sells everything, so what happens when a customer walks into an Amazon store and can't walk out with what they aimed to buy? Are they going to be able to stock their stores with what customers want, quickly enough to be sufficiently profitable? This is not a new problem; traditional retailers have been working on this problem for more than 50 years. Each retailer has to figure out which products will get their customers to walk in the door, and come up with a floor plan and a product assortment that balances their profit margins with demand. Target mastered the art of the endcap to an incredible degree, for example. But what works for Target might not work for Walmart--who actually captured their own market by building in rural areas and driving out all the competition!
So, now that Amazon has a chain of retail locations to tailor to their own specifications, what will differentiate them from the competition? Let's say you can go there for some stuff and also get your online purchases shipped to the store so you can pick it up all at once. Okay...you can do that at every retailer. Every retailer also price-matches now, so Amazon can't count on being able to capitalize on price. (Especially now that their overhead is about to shoot up.)
And then there's the issue that people shop at Whole Foods with intention, so if Whole Foods disappears as a grocer, do people evolve to Amazon, or what happens? Emotion drives shopping decisions too, and making a huge existing customer base mad enough to boycott your company is also expensive.
I feel like Amazon is doing a good job of assembling the required elements to compete effectively, but there are still a lot of questions about their B&M retail space that will be very expensive to figure out. There's a good reason that the major chains grew over time, where they hit on a winning formula and then expanded their market. Amazon is buying a market and now has to figure out a formula. That's tricky as shit. But as long as Whole Foods remains profitable, then it will help pay the store bills until they figure out how to evolve into B&M space.
posted by Autumnheart at 12:32 PM on June 20, 2017 [8 favorites]
I'm sure they'll keep the grocery business going for a while, but presumably their pilot stores and Amazon Lockers have been about testing workable models for attracting foot traffic, and now they'll be able to launch these efforts in major markets at a genuinely competitive reach.
But, it doesn't mean Amazon knows a lot about real-space retailing, and it bears mentioning that even popular, long-standing retailers like Target try this kind of thing and fuck up spectacularly (Target Canada). Amazon can certainly hire people who know what they're doing, true, but this endeavor could kinda go either way. The B&M retail industry is tough, in large part because of the delicate balance between meeting demand and the cost of overhead, and Amazon's forte is in developing a model that is explicitly independent of that requirement.
I mean, whatever Amazon wants to say about their logistics, you can't escape the reality that you can't put everything in your stores that you want to sell, and putting things in stores costs money and takes time, without guaranteeing that you make money. Amazon has spent the last 20 years being the retailer that sells everything, so what happens when a customer walks into an Amazon store and can't walk out with what they aimed to buy? Are they going to be able to stock their stores with what customers want, quickly enough to be sufficiently profitable? This is not a new problem; traditional retailers have been working on this problem for more than 50 years. Each retailer has to figure out which products will get their customers to walk in the door, and come up with a floor plan and a product assortment that balances their profit margins with demand. Target mastered the art of the endcap to an incredible degree, for example. But what works for Target might not work for Walmart--who actually captured their own market by building in rural areas and driving out all the competition!
So, now that Amazon has a chain of retail locations to tailor to their own specifications, what will differentiate them from the competition? Let's say you can go there for some stuff and also get your online purchases shipped to the store so you can pick it up all at once. Okay...you can do that at every retailer. Every retailer also price-matches now, so Amazon can't count on being able to capitalize on price. (Especially now that their overhead is about to shoot up.)
And then there's the issue that people shop at Whole Foods with intention, so if Whole Foods disappears as a grocer, do people evolve to Amazon, or what happens? Emotion drives shopping decisions too, and making a huge existing customer base mad enough to boycott your company is also expensive.
I feel like Amazon is doing a good job of assembling the required elements to compete effectively, but there are still a lot of questions about their B&M retail space that will be very expensive to figure out. There's a good reason that the major chains grew over time, where they hit on a winning formula and then expanded their market. Amazon is buying a market and now has to figure out a formula. That's tricky as shit. But as long as Whole Foods remains profitable, then it will help pay the store bills until they figure out how to evolve into B&M space.
posted by Autumnheart at 12:32 PM on June 20, 2017 [8 favorites]
> So, now that Amazon has a chain of retail locations to tailor to their own specifications, what will differentiate them from the competition?
Autumnheart, the article's thesis is that Amazon doesn't care - that's for their Whole Foods subsidiary to figure out, and Whole Foods seems to have a handle on how to run their business already. Amazon's key goal is to take over the logistics chain that supplies Whole Foods, and use that to expand into other retail supply chains.
Just like they built Amazon Web Services with the Amazon e-commerce storefront as the guaranteed "first, best customer", but then took over a giant chunk of business cloud computing, they are going to take over deliveries to restaurants, homes, and other grocery stores on the strength of their logistics chain.
posted by RedOrGreen at 12:52 PM on June 20, 2017 [26 favorites]
Autumnheart, the article's thesis is that Amazon doesn't care - that's for their Whole Foods subsidiary to figure out, and Whole Foods seems to have a handle on how to run their business already. Amazon's key goal is to take over the logistics chain that supplies Whole Foods, and use that to expand into other retail supply chains.
Just like they built Amazon Web Services with the Amazon e-commerce storefront as the guaranteed "first, best customer", but then took over a giant chunk of business cloud computing, they are going to take over deliveries to restaurants, homes, and other grocery stores on the strength of their logistics chain.
posted by RedOrGreen at 12:52 PM on June 20, 2017 [26 favorites]
This is also an interesting article about the acquisition and its effect on B&M retail in general. Some of it repeats what I just said, and then goes into more analysis about how it will affect the grocery market in particular.
The Amazon-Whole Foods deal presents an opportunity for retail real estate investors, according to Matthew Harding, president of retail real estate services firm Levin Management. The combo with the e-commerce behemoth will help lessen “this perceived threat that all brick-and-mortar retail will be dead by next January,” he says.
Very good point. People have kinda been touting the whole "B&M shopping is dying" thing for as long as Amazon has been around, and Amazon investing in a B&M footprint does fly in the face of that way of thinking--it can't be dying too quickly, then, if Amazon decided to drop $13B on stores themselves. But, you know, we live in a physical world, not a virtual one, so it wasn't really realistic to expect everyone to give up physical stores entirely in the first place.
Autumnheart, the article's thesis is that Amazon doesn't care - that's for their Whole Foods subsidiary to figure out, and Whole Foods seems to have a handle on how to run their business already. Amazon's key goal is to take over the logistics chain that supplies Whole Foods, and use that to expand into other retail supply chains.
Well, Whole Foods sold because they were struggling. Wikipedia's summary says that as of April 2017, they had 6 consecutive quarters of declining stores. And Amazon needs to care; they're a public company and they just spent an enormous amount of someone else's money. Shareholders expect a return.
posted by Autumnheart at 12:58 PM on June 20, 2017 [2 favorites]
The Amazon-Whole Foods deal presents an opportunity for retail real estate investors, according to Matthew Harding, president of retail real estate services firm Levin Management. The combo with the e-commerce behemoth will help lessen “this perceived threat that all brick-and-mortar retail will be dead by next January,” he says.
Very good point. People have kinda been touting the whole "B&M shopping is dying" thing for as long as Amazon has been around, and Amazon investing in a B&M footprint does fly in the face of that way of thinking--it can't be dying too quickly, then, if Amazon decided to drop $13B on stores themselves. But, you know, we live in a physical world, not a virtual one, so it wasn't really realistic to expect everyone to give up physical stores entirely in the first place.
Autumnheart, the article's thesis is that Amazon doesn't care - that's for their Whole Foods subsidiary to figure out, and Whole Foods seems to have a handle on how to run their business already. Amazon's key goal is to take over the logistics chain that supplies Whole Foods, and use that to expand into other retail supply chains.
Well, Whole Foods sold because they were struggling. Wikipedia's summary says that as of April 2017, they had 6 consecutive quarters of declining stores. And Amazon needs to care; they're a public company and they just spent an enormous amount of someone else's money. Shareholders expect a return.
posted by Autumnheart at 12:58 PM on June 20, 2017 [2 favorites]
Whole Foods criminally underinvested in their technology platform so short-sightedly that it cost them the market lead. They have zero strategic game in IT, all investment has been tactical and...well, I did what I could to innovate for the decade I spent there in IT. Amazon will make the right investments in their tech stack to make them competitive again. I see it as more of an IT investment strategy over the long run that will in the end give Amazon a hell of a great food distribution network.
(I believe this because I built the second, third and fourth generation network infrastructure for the global WFM food distribution system)
posted by Annika Cicada at 1:12 PM on June 20, 2017 [24 favorites]
(I believe this because I built the second, third and fourth generation network infrastructure for the global WFM food distribution system)
posted by Annika Cicada at 1:12 PM on June 20, 2017 [24 favorites]
(Er, 6 consecutive quarters of declining SALES. Sorry.)
posted by Autumnheart at 1:12 PM on June 20, 2017
posted by Autumnheart at 1:12 PM on June 20, 2017
What would you say was the factor, or factors, that led Whole Foods to under-invest so dramatically?
posted by Autumnheart at 1:13 PM on June 20, 2017
posted by Autumnheart at 1:13 PM on June 20, 2017
And Amazon needs to care
I think Thompson would argue that Amazon will do what they can to keep Whole Foods going, but primarily to help build out their grocery logistics business.
Shareholders expect a return
Certainly they expect a return on stock price, but Amazon is famously low-to-zero profit, and has been for most of it's existence. The market has a lot of trust in Bezos and the company's decisions.
Again, if Thompson is right, it's totally possible for Whole Foods to fail and for Amazon to succeed — if they build out their logistics side successfully and are able to sell the service to other grocery markets (and other kinds of markets, ie restaurant, individual deliver, etc.) and Whole Foods itself can't survive (due, say, to market trends it can't keep up with), that's a net win for Amazon.
posted by wemayfreeze at 1:17 PM on June 20, 2017 [3 favorites]
I think Thompson would argue that Amazon will do what they can to keep Whole Foods going, but primarily to help build out their grocery logistics business.
Shareholders expect a return
Certainly they expect a return on stock price, but Amazon is famously low-to-zero profit, and has been for most of it's existence. The market has a lot of trust in Bezos and the company's decisions.
Again, if Thompson is right, it's totally possible for Whole Foods to fail and for Amazon to succeed — if they build out their logistics side successfully and are able to sell the service to other grocery markets (and other kinds of markets, ie restaurant, individual deliver, etc.) and Whole Foods itself can't survive (due, say, to market trends it can't keep up with), that's a net win for Amazon.
posted by wemayfreeze at 1:17 PM on June 20, 2017 [3 favorites]
Certainly they expect a return on stock price, but Amazon is famously low-to-zero profit, and has been for most of it's existence. The market has a lot of trust in Bezos and the company's decisions.
Yes, but this is not a sustainable business model, and it's dependent on the good nature of, basically, Wall Street. And you do have to ask yourself WHY the market has trust in Bezos and the company's decisions, when the company doesn't make any money. Like what other company can anyone name, that never makes money and yet is seen as a good investment? It's not a logic-based decision. Which goes back to the issue of customer loyalty, and how people support a brand just because they like it--and how phasing out one brand (WF) might negatively impact the other (Amazon).
posted by Autumnheart at 1:20 PM on June 20, 2017 [1 favorite]
Yes, but this is not a sustainable business model, and it's dependent on the good nature of, basically, Wall Street. And you do have to ask yourself WHY the market has trust in Bezos and the company's decisions, when the company doesn't make any money. Like what other company can anyone name, that never makes money and yet is seen as a good investment? It's not a logic-based decision. Which goes back to the issue of customer loyalty, and how people support a brand just because they like it--and how phasing out one brand (WF) might negatively impact the other (Amazon).
posted by Autumnheart at 1:20 PM on June 20, 2017 [1 favorite]
Amazon just acquired a training ground for retail artificial intelligence research
posted by robbyrobs at 1:28 PM on June 20, 2017 [1 favorite]
posted by robbyrobs at 1:28 PM on June 20, 2017 [1 favorite]
Sysco stock dropped about 5% on Friday morning. Looks like someone figured that part out really quickly.
posted by JoeZydeco at 1:29 PM on June 20, 2017 [7 favorites]
posted by JoeZydeco at 1:29 PM on June 20, 2017 [7 favorites]
Sure, if you want your AI to focus exclusively on the average WF shopper. Not exactly a beacon of diversity.
A 5% stock drop in one day doesn't really mean anything long-term.
posted by Autumnheart at 1:30 PM on June 20, 2017
A 5% stock drop in one day doesn't really mean anything long-term.
posted by Autumnheart at 1:30 PM on June 20, 2017
And you do have to ask yourself WHY the market has trust in Bezos and the company's decisions, when the company doesn't make any money.
That's a misdiagnosis of Amazon's business. As Benedict Evans puts it:
Amazon makes tons of money, but they invest it all back in the business. It is true that Wall Street is a collective delusion, but this is not a losing business with nothing but bluster keeping its stock price afloat.
posted by wemayfreeze at 1:31 PM on June 20, 2017 [4 favorites]
That's a misdiagnosis of Amazon's business. As Benedict Evans puts it:
That is, the problem with net income is that all it tells us is that every quarter, Amazon spends whatever’s left over to get the number to zero or thereabouts. There’s really no other way to achieve that sort of consistency.
Amazon makes tons of money, but they invest it all back in the business. It is true that Wall Street is a collective delusion, but this is not a losing business with nothing but bluster keeping its stock price afloat.
posted by wemayfreeze at 1:31 PM on June 20, 2017 [4 favorites]
Amazon makes tons of money, but they invest it all back in the business. It is true that Wall Street is a collective delusion, but this is not a losing business with nothing but bluster keeping its stock price afloat.
But that's just it! This is not why companies exist. They exist to make money for shareholders. No other company gets this kind of pass. Why does Amazon? What value are they bringing, if they're not making anyone money? Especially with a move like purchasing Whole Foods, which makes sense if you want to compete with existing retailers on their own turf...but why would you do that, when you already enormously dominate your own niche? They just spent $13B to compete in a market where other retailers have a gigantic lead over them. To do what, sell bananas and grass-fed beef at low margins like every other grocery chain?
That is indeed the magic question of course, but it's bad business to just perpetually expect investors to "trust you".
posted by Autumnheart at 1:40 PM on June 20, 2017
But that's just it! This is not why companies exist. They exist to make money for shareholders. No other company gets this kind of pass. Why does Amazon? What value are they bringing, if they're not making anyone money? Especially with a move like purchasing Whole Foods, which makes sense if you want to compete with existing retailers on their own turf...but why would you do that, when you already enormously dominate your own niche? They just spent $13B to compete in a market where other retailers have a gigantic lead over them. To do what, sell bananas and grass-fed beef at low margins like every other grocery chain?
That is indeed the magic question of course, but it's bad business to just perpetually expect investors to "trust you".
posted by Autumnheart at 1:40 PM on June 20, 2017
And you do have to ask yourself WHY the market has trust in Bezos and the company's decisions, when the company doesn't make any money.
Amazon often flip-flops between showing profits and losses, depending on how aggressively it decides to plow money into big new business bets. Investors have granted the company much wider leeway to do so than other technology companies of its size often receive, because of its history of delivering outsize growth.
Amazon can turn on the taps whenever they want. 64% of American households are Prime subscribers. If Bezos wants to goose profitability a bit, he can raise prices a tick or two whenever he wants, because the majority of American households are slowly becoming addicted to free two day shipping.
That's why I think your read of the Whole Foods purchase is backward. Amazon didn't buy Whole Foods in order to turn the Whole Foods stores into Amazon stores. They bought Whole Foods in order to turn Whole Foods stores into Amazon warehouses. Amazon is a logistics company. They ship. And they do that better than anyone, and that's why people like them --- the more people shop at Amazon, the less time they have to spend shopping at brick and mortar retailers. Right now, one of the last remaining product categories most people buy brick and mortar is perishable food. There are grocery delivery services, but most of them kind of suck and are expensive. If people were able to get groceries delivered for free with the quality and selection they want, they'd do it in heartbeat. That's why Whole Foods is the brand worth purchasing in the space. Their whole brand is posh perishables. All the problems you point out with dominating brick and mortar retail are quite accurate, and that's why Amazon wants no part of them.
posted by Diablevert at 1:41 PM on June 20, 2017 [6 favorites]
Amazon often flip-flops between showing profits and losses, depending on how aggressively it decides to plow money into big new business bets. Investors have granted the company much wider leeway to do so than other technology companies of its size often receive, because of its history of delivering outsize growth.
Amazon can turn on the taps whenever they want. 64% of American households are Prime subscribers. If Bezos wants to goose profitability a bit, he can raise prices a tick or two whenever he wants, because the majority of American households are slowly becoming addicted to free two day shipping.
That's why I think your read of the Whole Foods purchase is backward. Amazon didn't buy Whole Foods in order to turn the Whole Foods stores into Amazon stores. They bought Whole Foods in order to turn Whole Foods stores into Amazon warehouses. Amazon is a logistics company. They ship. And they do that better than anyone, and that's why people like them --- the more people shop at Amazon, the less time they have to spend shopping at brick and mortar retailers. Right now, one of the last remaining product categories most people buy brick and mortar is perishable food. There are grocery delivery services, but most of them kind of suck and are expensive. If people were able to get groceries delivered for free with the quality and selection they want, they'd do it in heartbeat. That's why Whole Foods is the brand worth purchasing in the space. Their whole brand is posh perishables. All the problems you point out with dominating brick and mortar retail are quite accurate, and that's why Amazon wants no part of them.
posted by Diablevert at 1:41 PM on June 20, 2017 [6 favorites]
They just spent $13B to compete in a market where other retailers have a gigantic lead over them. To do what, sell bananas and grass-fed beef at low margins like every other grocery chain?
We're talking past each other here. Did you read the article? The article specifically refutes this line of thinking.
posted by wemayfreeze at 1:44 PM on June 20, 2017 [3 favorites]
We're talking past each other here. Did you read the article? The article specifically refutes this line of thinking.
posted by wemayfreeze at 1:44 PM on June 20, 2017 [3 favorites]
Yeah, the right way to look at Amazon is not as a traditional business, but as an investment fund. When people are investing in Amazon, they're saying "Jeff Bezos knows what to do with this money better than I do, he'll figure out something".
posted by straw at 1:58 PM on June 20, 2017
posted by straw at 1:58 PM on June 20, 2017
Why does Amazon? What value are they bringing, if they're not making anyone money
Uhhh... to increase the value of the company, so the shareholder can sell their shares at a profit? Stock buy-backs and dividend pay-outs are nice, but they're not universal. Amazon has done a fantastic job of building value, and their stock price shows it. If you bought some shares back in '10, you'd be neck deep in green, despite not a cent of dividend paid.
posted by Slap*Happy at 1:58 PM on June 20, 2017
Uhhh... to increase the value of the company, so the shareholder can sell their shares at a profit? Stock buy-backs and dividend pay-outs are nice, but they're not universal. Amazon has done a fantastic job of building value, and their stock price shows it. If you bought some shares back in '10, you'd be neck deep in green, despite not a cent of dividend paid.
posted by Slap*Happy at 1:58 PM on June 20, 2017
Actually, I just thought of a more succinct way to put this, Autumnheart. You wondered why Wall Street gives Amazon so much leeway. But it is well understood that any big company may decide to run at a loss from time to time if it helps to drive a competitor out of business. Once the herd has been thinned, profit margins will rise.
For Amazon, that little guy they're trying to crush is brick-and-mortar retail. Bezos' bet is that the internet will make it possible to buy almost everything you could want online. And that's what he wants a cut of --- everything.
The key to achieving that is being the best at shipping, reducing as much as possible the time and expense of online purchasing. They want you to hit click and be able to hold that item in your hand within the hour. At that point, brick and mortar retail has no advantage over online retail.
It's funny, if you think about it that way. Amazon was a bookstore not because Bezos cares about books or even because he wanted to destroy publishing, particularly. It was bookstore because books are the easiest things to ship. Relatively uniform in size, easy to densely stack and store, never go bad. Almost their whole expansion has been in increasing the complexity of the kinds of products they ship....
posted by Diablevert at 1:58 PM on June 20, 2017 [8 favorites]
For Amazon, that little guy they're trying to crush is brick-and-mortar retail. Bezos' bet is that the internet will make it possible to buy almost everything you could want online. And that's what he wants a cut of --- everything.
The key to achieving that is being the best at shipping, reducing as much as possible the time and expense of online purchasing. They want you to hit click and be able to hold that item in your hand within the hour. At that point, brick and mortar retail has no advantage over online retail.
It's funny, if you think about it that way. Amazon was a bookstore not because Bezos cares about books or even because he wanted to destroy publishing, particularly. It was bookstore because books are the easiest things to ship. Relatively uniform in size, easy to densely stack and store, never go bad. Almost their whole expansion has been in increasing the complexity of the kinds of products they ship....
posted by Diablevert at 1:58 PM on June 20, 2017 [8 favorites]
Arwa Mahdawi, Guardian: It's not just Amazon coming for Whole Foods – Silicon Valley is eating the world
posted by Johnny Wallflower at 2:15 PM on June 20, 2017 [8 favorites]
We have seen private companies slowly seize control of public infrastructure for decades now and overtake nation states when it comes to power and influence. In Jihad vs McWorld, first published in 1995, Benjamin Barber writes, “By many measures, corporations are more central players in global affairs than nations. We call them multinational but they are more accurately understood as postnational, transnational or even anti-national. For they abjure the very idea of nations or any other parochialism that limits them in time or space.” That was the state of affairs in 1995; since then, corporations have only grown in power.We're living in the first stages of Gibson's Sprawl.
posted by Johnny Wallflower at 2:15 PM on June 20, 2017 [8 favorites]
>We're talking past each other here. Did you read the article? The article specifically refutes this line of thinking.
Yes, I did read the article, but I also work in the industry, so I'm considering more factors than just what the article said. (And to be fair, I have access to more background information than people outside the industry, so there is that.)
Actually, I just thought of a more succinct way to put this, Autumnheart. You wondered why Wall Street gives Amazon so much leeway. But it is well understood that any big company may decide to run at a loss from time to time if it helps to drive a competitor out of business. Once the herd has been thinned, profit margins will rise.
And again, that's just it--Amazon has been around for about 20 years without turning a profit. They're not running a loss "from time to time", they aren't. profitable. No other company gets this Golden Child benefit of the doubt, especially not in retail. They're still being looked at, and treated like, a start-up when they are not a start-up.
So the question I'm framing here is, how long are investors going to tolerate that? I mean yeah--20 years is a pretty good run and, who knows, maybe Wall Street just wants to support Amazon indefinitely with an inflated stock price for no reason, like a favorite child who still lives at home at age 35. That doesn't mean that Amazon has cracked the secret of being successful in e-commerce, or will be successful in multi-channel commerce, because they have not proven that they can compete in this market, and they are taking a giant financial risk to give it a shot.
Even Apple eventually stopped being seen as the goose that laid the golden egg, and they are profitable--very, very profitable. Their business model is great, but their lack of (recent) innovation and their insistence on arbitrary design decisions has come under scrutiny in recent years as their sales have dropped off. Think about that for a minute--why is the richest company in the world subject to criticism for their growth projections, when they have proven beyond question that they are a profitable business, when Amazon is not subject to that criticism, when they have never proven that they can be a profitable business? Because Wall Street is arbitrary like that, that's why.
For Amazon, that little guy they're trying to crush is brick-and-mortar retail. Bezos' bet is that the internet will make it possible to buy almost everything you could want online. And that's what he wants a cut of --- everything.
And so their brilliant plan in doing this is to...buy a (struggling) brick-and-mortar retail chain? That makes no sense. That's my point. But then, it never made sense that Amazon would try to crush B&M retail, because all the evidence since the year 2000 points to the irrefutable fact that people want to go to stores and buy stuff in person, full stop. They want to buy stuff online too, but they absolutely do not only want to buy stuff online.
What does make sense is for Amazon to join in on the B&M party and gain a foothold that enables customers to buy both online and in person. People want to shop that way. Which brings me back to the issue of differentiation: if they're joining the B&M party, what are they going to put in their stores that satisfies people's impression of the Amazon brand, that isn't something other retailers already do (better)? Making money by buying a known brand with infrastructure problems that they can fix--that's a good start. But what does Phase 2 look like?
posted by Autumnheart at 2:26 PM on June 20, 2017
Yes, I did read the article, but I also work in the industry, so I'm considering more factors than just what the article said. (And to be fair, I have access to more background information than people outside the industry, so there is that.)
Actually, I just thought of a more succinct way to put this, Autumnheart. You wondered why Wall Street gives Amazon so much leeway. But it is well understood that any big company may decide to run at a loss from time to time if it helps to drive a competitor out of business. Once the herd has been thinned, profit margins will rise.
And again, that's just it--Amazon has been around for about 20 years without turning a profit. They're not running a loss "from time to time", they aren't. profitable. No other company gets this Golden Child benefit of the doubt, especially not in retail. They're still being looked at, and treated like, a start-up when they are not a start-up.
So the question I'm framing here is, how long are investors going to tolerate that? I mean yeah--20 years is a pretty good run and, who knows, maybe Wall Street just wants to support Amazon indefinitely with an inflated stock price for no reason, like a favorite child who still lives at home at age 35. That doesn't mean that Amazon has cracked the secret of being successful in e-commerce, or will be successful in multi-channel commerce, because they have not proven that they can compete in this market, and they are taking a giant financial risk to give it a shot.
Even Apple eventually stopped being seen as the goose that laid the golden egg, and they are profitable--very, very profitable. Their business model is great, but their lack of (recent) innovation and their insistence on arbitrary design decisions has come under scrutiny in recent years as their sales have dropped off. Think about that for a minute--why is the richest company in the world subject to criticism for their growth projections, when they have proven beyond question that they are a profitable business, when Amazon is not subject to that criticism, when they have never proven that they can be a profitable business? Because Wall Street is arbitrary like that, that's why.
For Amazon, that little guy they're trying to crush is brick-and-mortar retail. Bezos' bet is that the internet will make it possible to buy almost everything you could want online. And that's what he wants a cut of --- everything.
And so their brilliant plan in doing this is to...buy a (struggling) brick-and-mortar retail chain? That makes no sense. That's my point. But then, it never made sense that Amazon would try to crush B&M retail, because all the evidence since the year 2000 points to the irrefutable fact that people want to go to stores and buy stuff in person, full stop. They want to buy stuff online too, but they absolutely do not only want to buy stuff online.
What does make sense is for Amazon to join in on the B&M party and gain a foothold that enables customers to buy both online and in person. People want to shop that way. Which brings me back to the issue of differentiation: if they're joining the B&M party, what are they going to put in their stores that satisfies people's impression of the Amazon brand, that isn't something other retailers already do (better)? Making money by buying a known brand with infrastructure problems that they can fix--that's a good start. But what does Phase 2 look like?
posted by Autumnheart at 2:26 PM on June 20, 2017
> Making money by buying a known brand with infrastructure problems that they can fix--that's a good start. But what does Phase 2 look like?
We really are talking past each other here. Maybe you're too familiar with the actual industry to take the 30,000 feet view, but if I were Jeff Bezos - actually, if I were Jeff Bezos, I'd stroke a white Persian cat while watching my Blue Origin rocket launches, so forget that - in my interpretation, fixing Whole Foods' infrastructure issues has nothing to do with it. The Whole Foods acquisition guarantees that if Amazon builds out a grocery logistics chain, they have a customer in hand.
Next, they offer that logistics chain to restaurants ("Free overnight shipping for 200 pounds of Crisco with Restaurant Prime!"), other grocery chains ("Why ship potatoes on your own trucks when we can do it for cheaper?"), and eventually homes.
The bet is that Amazon can scale faster and better on grocery logistics - not groceries - than even Walmart can. (There's already a Walmart in most towns, but I don't buy my groceries online from them so they obviously haven't figured it out yet.)
posted by RedOrGreen at 2:38 PM on June 20, 2017 [3 favorites]
We really are talking past each other here. Maybe you're too familiar with the actual industry to take the 30,000 feet view, but if I were Jeff Bezos - actually, if I were Jeff Bezos, I'd stroke a white Persian cat while watching my Blue Origin rocket launches, so forget that - in my interpretation, fixing Whole Foods' infrastructure issues has nothing to do with it. The Whole Foods acquisition guarantees that if Amazon builds out a grocery logistics chain, they have a customer in hand.
Next, they offer that logistics chain to restaurants ("Free overnight shipping for 200 pounds of Crisco with Restaurant Prime!"), other grocery chains ("Why ship potatoes on your own trucks when we can do it for cheaper?"), and eventually homes.
The bet is that Amazon can scale faster and better on grocery logistics - not groceries - than even Walmart can. (There's already a Walmart in most towns, but I don't buy my groceries online from them so they obviously haven't figured it out yet.)
posted by RedOrGreen at 2:38 PM on June 20, 2017 [3 favorites]
And so their brilliant plan in doing this is to...buy a (struggling) brick-and-mortar retail chain?
So, I guess one related question I have is why Whole Foods? There are other struggling retailers that have more locations and thus more national reach than Whole Foods (e.g., Sears). There are also more successful retailers and supermarket retailers with a smaller reach that Amazon could have bought and studied under a microscope to replicate (e.g., Sprouts).
posted by FJT at 3:00 PM on June 20, 2017 [1 favorite]
So, I guess one related question I have is why Whole Foods? There are other struggling retailers that have more locations and thus more national reach than Whole Foods (e.g., Sears). There are also more successful retailers and supermarket retailers with a smaller reach that Amazon could have bought and studied under a microscope to replicate (e.g., Sprouts).
posted by FJT at 3:00 PM on June 20, 2017 [1 favorite]
Under the PrimeNow banner Amazon has already made moves into the grocery delivery business, both directly from their own warehouses and via partnerships with conspicuously Whole Foods-esque grocers like Sprouts (Denver), New Seasons (Portland), Fresh Thyme (Indianapolis), etc. Acquiring Whole Foods allows Amazon to, one assumes, jettison these partnerships and go direct.
posted by joseph_elmhurst at 3:04 PM on June 20, 2017 [1 favorite]
posted by joseph_elmhurst at 3:04 PM on June 20, 2017 [1 favorite]
So, I guess one related question I have is why Whole Foods? There are other struggling retailers that have more locations and thus more national reach than Whole Foods (e.g., Sears).
A Whole Foods customer is worth a hell of a lot more than a Sears customer.
posted by Automocar at 3:17 PM on June 20, 2017 [9 favorites]
A Whole Foods customer is worth a hell of a lot more than a Sears customer.
posted by Automocar at 3:17 PM on June 20, 2017 [9 favorites]
I saw another article earlier today suggesting that Amazon's plans for WF include scaling back its pricey reputation, and even trying to compete with Walmart.
This suggests to me that what Amazon wants is the network of B&M stores. You need that to compete in perishable food. As noted upthread grocery delivery services have come and gone, but food is one area where the ability to see and handle the merch before you buy it is critical. I suspect they are thinking that they don't need Walmart's non-Super side, since they are already doing very well in that space with delivery only, but they need local B&M presence to move into food. With Whole Foods they get a bargain on a wide-flung network of stores. They don't really want WF's customers though. They want Walmart's customers, and there will be big changes in WF's product line and pricing structure to accomplish this.
Basically if you like WF as they are now you can kiss them goodbye. This is the same as when Gap bought Banana Republic. They will probably retain some of the trappings of the WF brand but the actual product is going to be much cheaper and more downscale, because they want to compete with Walmart.
And the thinking is almost certainly that they can do that because they are shipping and logistics wizards, and WF was struggling both because they aren't and because they were focusing on a small upscale customer base. By buying WF outright they get to enter this market skipping the step where you build it out from a handful of stores with modest distribution resources.
The question is how they manage the retail space itself; this is something Amazon has always avoided and WF was a bit specialist at. You need public facing employees to arrange the goods, greet the customers, and all that stuff Amazon has never had to do. Whether this move works for them will largely depend on whether they can quickly master that stuff as well as being logistics and distribution wizards.
posted by Bringer Tom at 3:29 PM on June 20, 2017
This suggests to me that what Amazon wants is the network of B&M stores. You need that to compete in perishable food. As noted upthread grocery delivery services have come and gone, but food is one area where the ability to see and handle the merch before you buy it is critical. I suspect they are thinking that they don't need Walmart's non-Super side, since they are already doing very well in that space with delivery only, but they need local B&M presence to move into food. With Whole Foods they get a bargain on a wide-flung network of stores. They don't really want WF's customers though. They want Walmart's customers, and there will be big changes in WF's product line and pricing structure to accomplish this.
Basically if you like WF as they are now you can kiss them goodbye. This is the same as when Gap bought Banana Republic. They will probably retain some of the trappings of the WF brand but the actual product is going to be much cheaper and more downscale, because they want to compete with Walmart.
And the thinking is almost certainly that they can do that because they are shipping and logistics wizards, and WF was struggling both because they aren't and because they were focusing on a small upscale customer base. By buying WF outright they get to enter this market skipping the step where you build it out from a handful of stores with modest distribution resources.
The question is how they manage the retail space itself; this is something Amazon has always avoided and WF was a bit specialist at. You need public facing employees to arrange the goods, greet the customers, and all that stuff Amazon has never had to do. Whether this move works for them will largely depend on whether they can quickly master that stuff as well as being logistics and distribution wizards.
posted by Bringer Tom at 3:29 PM on June 20, 2017
And again, that's just it--Amazon has been around for about 20 years without turning a profit. They're not running a loss "from time to time", they aren't. profitable.
Amazon first turned an annual profit in 2004, 13 years ago. They have posted annual profits for the past several years, mostly on the back of Amazon Web Services, while continuing to invest in the growth of their retail lines.
But then, it never made sense that Amazon would try to crush B&M retail, because all the evidence since the year 2000 points to the irrefutable fact that people want to go to stores and buy stuff in person, full stop.
Well, now we speak of philosophy, yeah? Articles of faith. I'm sure each of us could citeScripturestatistics to his purpose. But this is a big broad topic, and I don't think any single piece of data is definitive, so one's analysis is always reliant on outlook and temperament.
For my part, I don't think it's at all irrefutable that people want to buy stuff in person. Some things, at some times, people want to buy in person. Because they need it quickly, or because they need to test its fit or quality before they're willing to purchase. For some people, shopping can be a form of recreation. But most of the time, for most people, I'd say it's a hassle. If online shopping becomes less of a hassle than offline, people will shop online.
E-commerce still makes up less than 10% of total retail. But ecommerce has been posting double-digit growth for over a decade, and shows no signs of stopping. Amazon currently accounts for about 40% of all ecommerce sales.
Whereas brick and mortar retail has lately been rather troubled, even with low unemployment and growth in sales. In the US in particular, we've got way more retail space than we need.
The car was invented in the mid-1880s; in the year 1900, cars were still rich men's playthings. The population of horses in the US continued to rise until 1915, 30 years after the automobile came on the scene. Nevertheless, the car was a superior mode of transport to the horse, and largely replaced it by the 1930s.
posted by Diablevert at 3:47 PM on June 20, 2017 [1 favorite]
Amazon first turned an annual profit in 2004, 13 years ago. They have posted annual profits for the past several years, mostly on the back of Amazon Web Services, while continuing to invest in the growth of their retail lines.
But then, it never made sense that Amazon would try to crush B&M retail, because all the evidence since the year 2000 points to the irrefutable fact that people want to go to stores and buy stuff in person, full stop.
Well, now we speak of philosophy, yeah? Articles of faith. I'm sure each of us could cite
For my part, I don't think it's at all irrefutable that people want to buy stuff in person. Some things, at some times, people want to buy in person. Because they need it quickly, or because they need to test its fit or quality before they're willing to purchase. For some people, shopping can be a form of recreation. But most of the time, for most people, I'd say it's a hassle. If online shopping becomes less of a hassle than offline, people will shop online.
E-commerce still makes up less than 10% of total retail. But ecommerce has been posting double-digit growth for over a decade, and shows no signs of stopping. Amazon currently accounts for about 40% of all ecommerce sales.
Whereas brick and mortar retail has lately been rather troubled, even with low unemployment and growth in sales. In the US in particular, we've got way more retail space than we need.
The car was invented in the mid-1880s; in the year 1900, cars were still rich men's playthings. The population of horses in the US continued to rise until 1915, 30 years after the automobile came on the scene. Nevertheless, the car was a superior mode of transport to the horse, and largely replaced it by the 1930s.
posted by Diablevert at 3:47 PM on June 20, 2017 [1 favorite]
But that's just it! This is not why companies exist. They exist to make money for shareholders.
Your conclusions are based on this false premise. Companies exist to provide a good or a service. Profits are a possible byproduct.
Take someone who wants to make a table, they do a good job, and other people say, "hey, that's a good table! You should make more." They make more tables, sell them to people, eventually quit their full-time job, start a company, hire more people, and make more and more tables.
Perhaps this business is profitable, and as people invest in the company, they see a return on investment. However, the company was not formed to provide an ROI to investors. The company was founded on the basis of making tables. Companies fall apart when they seek profit first over providing a quality product or service and thinking about the longevity of the company.
posted by explosion at 3:48 PM on June 20, 2017 [4 favorites]
Your conclusions are based on this false premise. Companies exist to provide a good or a service. Profits are a possible byproduct.
Take someone who wants to make a table, they do a good job, and other people say, "hey, that's a good table! You should make more." They make more tables, sell them to people, eventually quit their full-time job, start a company, hire more people, and make more and more tables.
Perhaps this business is profitable, and as people invest in the company, they see a return on investment. However, the company was not formed to provide an ROI to investors. The company was founded on the basis of making tables. Companies fall apart when they seek profit first over providing a quality product or service and thinking about the longevity of the company.
posted by explosion at 3:48 PM on June 20, 2017 [4 favorites]
but food is one area where the ability to see and handle the merch before you buy it is critical.
Well, some of it. Packaged food, not really, and that's most of what most people buy. But then again, I don't trust a warehouse shipper to pick out my apples or grapes for me.
I'm assuming Bezos and pals have thought of all that, though.
The other part I wonder about is the one weakness of Amazon; comparison shopping. By which I mean, if you're buying an exercise bike or a pair of socks, it's fine to read product reviews and hit the button, worth your time. Is it worth my time to read reviews and buy everything on my grocery list, as opposed to going to the store and comparing x with y myself? And a lot of my grocery shopping is not by a list--I get the thing I wanted, remember "hey we're nearly out of X" and pick that up too, and then if there's a sale I might buy something else. I do a fair amount of shopping online but it doesn't really replicate that experience, and again, it seems like it would be more of a hassle.
Also, if you have kids, getting out of the house is not a bad thing. I took many trips to Target when the kiddo was small just to see other human beings whose diapers I did not have to change. Even now I find it kind of soothing to just wander around and look at stuff, and online shopping isn't like that at all.
As far as getting stuff "in an hour" a trip to the store takes me about that much time. If I lived out in the country, that wouldn't be true, but then how quickly would the delivery truck get there either?
It's possible we are on the brink of getting rid of brick and mortar, but I'm having a hard time seeing it.
posted by emjaybee at 3:50 PM on June 20, 2017
Well, some of it. Packaged food, not really, and that's most of what most people buy. But then again, I don't trust a warehouse shipper to pick out my apples or grapes for me.
I'm assuming Bezos and pals have thought of all that, though.
The other part I wonder about is the one weakness of Amazon; comparison shopping. By which I mean, if you're buying an exercise bike or a pair of socks, it's fine to read product reviews and hit the button, worth your time. Is it worth my time to read reviews and buy everything on my grocery list, as opposed to going to the store and comparing x with y myself? And a lot of my grocery shopping is not by a list--I get the thing I wanted, remember "hey we're nearly out of X" and pick that up too, and then if there's a sale I might buy something else. I do a fair amount of shopping online but it doesn't really replicate that experience, and again, it seems like it would be more of a hassle.
Also, if you have kids, getting out of the house is not a bad thing. I took many trips to Target when the kiddo was small just to see other human beings whose diapers I did not have to change. Even now I find it kind of soothing to just wander around and look at stuff, and online shopping isn't like that at all.
As far as getting stuff "in an hour" a trip to the store takes me about that much time. If I lived out in the country, that wouldn't be true, but then how quickly would the delivery truck get there either?
It's possible we are on the brink of getting rid of brick and mortar, but I'm having a hard time seeing it.
posted by emjaybee at 3:50 PM on June 20, 2017
TSLA has done well, even recently, despite investor misgivings about the whole concept, but if the claim is the market is rational, the popular saying is the market can stay irrational longer than you can stay solvent - usually used to sway new investors from losing their shirt on wild investments, but also serves to illustrate that the market just isn't rational. It's just a game for rich people to play with money. That it affects people's lives is incidental to the scheme, and also the worst. Indeed, Whole Family claimed an income of $507 million for 2016, and Wall Street things this is indicative of terrible failure. But you're going to have to force me to drink a whole lot more capitalism Kool-aid before I'll accept 507 million freaking dollars of profit is bad news.
The article makes me think back to the original launch of EC2, where everyone, myself included, thought they were just trying to make some money on the side on unused web server capacity during the off-season. Turns out, they had far bigger plans; I'm sure the same is true with Whole Foods.
I'd be worried if I were Sysco.
posted by fragmede at 4:57 PM on June 20, 2017 [3 favorites]
The article makes me think back to the original launch of EC2, where everyone, myself included, thought they were just trying to make some money on the side on unused web server capacity during the off-season. Turns out, they had far bigger plans; I'm sure the same is true with Whole Foods.
I'd be worried if I were Sysco.
posted by fragmede at 4:57 PM on June 20, 2017 [3 favorites]
I figure the two places Amazon stands to win on this are the supply chain management (mentioned above and was a critical part of the failure of Taregt Canada) AND all of the data generated by WF. What a treasure trove of customer data they (would like to) buy into.
posted by djseafood at 4:57 PM on June 20, 2017
posted by djseafood at 4:57 PM on June 20, 2017
Lands' End used to be a pretty nice brand. With Walmart buying Bonobos, AMZ could buy Sears to get tons of real estate and a clothing line with loyalty and a reputation for quality.
posted by wenestvedt at 5:26 PM on June 20, 2017
posted by wenestvedt at 5:26 PM on June 20, 2017
E-commerce still makes up less than 10% of total retail. But ecommerce has been posting double-digit growth for over a decade
This. It's like simple physics, you can't extract free energy out of high heat alone, only out of a change in heat. Similarly, Wall Street can't extract free money out of high profits alone, it takes growth to extract free money from the economy. This is way Amazon gets a free pass despite having no profits and why Whole Food's $500 million in profits are seen as a failure. I'd imagine the shareholder ghouls think Amazon could turn the golden spigot in at any moment.
Your conclusions are based on this false premise. Companies exist to provide a good or a service. Profits are a possible byproduct.
Do we live on the same planet? Goods and services may be the ostensible purpose of companies, and that may even be true for some small businesses, but for the startups and megacorps that mission statement is, at best, tangential to their actual goals.
It strikes me that, should Amazon's brick and mortar ambitions succeed, they are uniquely positioned to be the most potentially harmful of the tech companies should they decide to break bad on their customers (kind of like how they already have on their labor...). Once Prime is in even more homes than that already high 64%, and it's providing their groceries too, I can only guess what would happen if they decided that the profit neutral phase of their story was over.
posted by cirrostratus at 6:21 PM on June 20, 2017 [1 favorite]
This. It's like simple physics, you can't extract free energy out of high heat alone, only out of a change in heat. Similarly, Wall Street can't extract free money out of high profits alone, it takes growth to extract free money from the economy. This is way Amazon gets a free pass despite having no profits and why Whole Food's $500 million in profits are seen as a failure. I'd imagine the shareholder ghouls think Amazon could turn the golden spigot in at any moment.
Your conclusions are based on this false premise. Companies exist to provide a good or a service. Profits are a possible byproduct.
Do we live on the same planet? Goods and services may be the ostensible purpose of companies, and that may even be true for some small businesses, but for the startups and megacorps that mission statement is, at best, tangential to their actual goals.
It strikes me that, should Amazon's brick and mortar ambitions succeed, they are uniquely positioned to be the most potentially harmful of the tech companies should they decide to break bad on their customers (kind of like how they already have on their labor...). Once Prime is in even more homes than that already high 64%, and it's providing their groceries too, I can only guess what would happen if they decided that the profit neutral phase of their story was over.
posted by cirrostratus at 6:21 PM on June 20, 2017 [1 favorite]
I reaaaally don't believe that 64% number. Amazon doesn't release
Numbers for their prime memberships so someone is just guessing.
(And 80 million, even if true, is not 64% of the population...)
posted by mer2113 at 7:15 PM on June 20, 2017 [2 favorites]
Numbers for their prime memberships so someone is just guessing.
(And 80 million, even if true, is not 64% of the population...)
posted by mer2113 at 7:15 PM on June 20, 2017 [2 favorites]
but I also work in the industry
Which doesn't apparently teach much about finance.
This is not why companies exist. They exist to make money for shareholders.
Please see AMZN. In particular, the 5yr or longer graphs.
Amazon has been around for about 20 years without turning a profit. They're not running a loss "from time to time", they aren't. profitable.
As has been explained, there's a difference between posting an accounting profit on your 10Q and making gobs of money, especially if you're beating your estimates as often as not. Amazon makes gobs of money and plows much of the excess back into the business. Companies like IBM, AT&T, Xerox, Digital Equipment, etc. used to do variations the same thing before showing accounting profits became more important to short sighted "investors" than innovation and sustainability.
Amazon is able to do what they are doing because they aren't bullshitting the market. The market likes transparency, even if you're swimming a bit against the current. They've said to the market, for 20 years, we're going to invest most everything extra back into the business to drive growth, we're going to meet or beat our earnings estimates so you know we're for real, so don't worry so much about those stupid quarterlies. And the market has been rewarded with growth and a very, very tidy return on the investment as the stock price continues to appreciate. And when they don't meet promises, the stock takes a hit (like it did in 3Q16 when they missed earnings estimates). That's how it should work.
Because Wall Street is arbitrary like that, that's why.
No, it most emphatically isn't. It's not some conspiracy of mustache twirling Wall Street villians who are under Bezos' Svengali thrall. If there was a chink in the armor, if "Amazon is not reporting a profit to the market" meant anything here, then there would be an army of short sellers tanking Amazon tomorrow. Even worse, there would be a bigger army of "shareholder advocate" lawyers filing suit left and right. None of this has happened. Because all the people who look at more than this quarters results see a return on their money and future growth prospects.
That said, WF might be a boondoggle. I dunno. Maybe you're right and there's some sekrit squirrel industry knowledge that dooms this adventure. That could be bad, but last I checked Amazon could do this out of cash reserves and not incur any debt (I haven't looked at the terms of the deal). So if it goes south (assuming they don't throw a lot of good money after bad) it's a reputational loss, but not a de facto existential crisis. Given the track record, I'm not inclined to bet against them.
posted by kjs3 at 7:20 PM on June 20, 2017 [6 favorites]
Which doesn't apparently teach much about finance.
This is not why companies exist. They exist to make money for shareholders.
Please see AMZN. In particular, the 5yr or longer graphs.
Amazon has been around for about 20 years without turning a profit. They're not running a loss "from time to time", they aren't. profitable.
As has been explained, there's a difference between posting an accounting profit on your 10Q and making gobs of money, especially if you're beating your estimates as often as not. Amazon makes gobs of money and plows much of the excess back into the business. Companies like IBM, AT&T, Xerox, Digital Equipment, etc. used to do variations the same thing before showing accounting profits became more important to short sighted "investors" than innovation and sustainability.
Amazon is able to do what they are doing because they aren't bullshitting the market. The market likes transparency, even if you're swimming a bit against the current. They've said to the market, for 20 years, we're going to invest most everything extra back into the business to drive growth, we're going to meet or beat our earnings estimates so you know we're for real, so don't worry so much about those stupid quarterlies. And the market has been rewarded with growth and a very, very tidy return on the investment as the stock price continues to appreciate. And when they don't meet promises, the stock takes a hit (like it did in 3Q16 when they missed earnings estimates). That's how it should work.
Because Wall Street is arbitrary like that, that's why.
No, it most emphatically isn't. It's not some conspiracy of mustache twirling Wall Street villians who are under Bezos' Svengali thrall. If there was a chink in the armor, if "Amazon is not reporting a profit to the market" meant anything here, then there would be an army of short sellers tanking Amazon tomorrow. Even worse, there would be a bigger army of "shareholder advocate" lawyers filing suit left and right. None of this has happened. Because all the people who look at more than this quarters results see a return on their money and future growth prospects.
That said, WF might be a boondoggle. I dunno. Maybe you're right and there's some sekrit squirrel industry knowledge that dooms this adventure. That could be bad, but last I checked Amazon could do this out of cash reserves and not incur any debt (I haven't looked at the terms of the deal). So if it goes south (assuming they don't throw a lot of good money after bad) it's a reputational loss, but not a de facto existential crisis. Given the track record, I'm not inclined to bet against them.
posted by kjs3 at 7:20 PM on June 20, 2017 [6 favorites]
And 80 million, even if true, is not 64% of the population...
The statistic was for households, not populsation. Looks to be about 125 million households in the US.
posted by wemayfreeze at 7:36 PM on June 20, 2017
The statistic was for households, not populsation. Looks to be about 125 million households in the US.
posted by wemayfreeze at 7:36 PM on June 20, 2017
It's possible we are on the brink of getting rid of brick and mortar, but I'm having a hard time seeing it.
I think another obstacle that will stop or slow the decline of b&m is that a lot of transactions, especially small ones like at the supermarket, involve plain old cash. But again, Amazon a couple months ago did start a service allowing people to pay into their Amazon.com balance at certain non-Amazon retail stores. However, that hardly seems to be a "friction-less" solution if I just want a quart of milk or a candy bar.
posted by FJT at 8:31 PM on June 20, 2017
I think another obstacle that will stop or slow the decline of b&m is that a lot of transactions, especially small ones like at the supermarket, involve plain old cash. But again, Amazon a couple months ago did start a service allowing people to pay into their Amazon.com balance at certain non-Amazon retail stores. However, that hardly seems to be a "friction-less" solution if I just want a quart of milk or a candy bar.
posted by FJT at 8:31 PM on June 20, 2017
Whole Foods has a really great distribution network. They figured out how to nationally (and internationally) distribute perishables and locally source products in a way that no one else has.
Amazon purchased a brilliant distribution system that needs a massive technology investment. I view this purchase from pure IT finance and it's smart. The stores are a nice bonus, but the vertically integrated distribution system is the golden egg here.
posted by Annika Cicada at 8:05 AM on June 21, 2017 [4 favorites]
Amazon purchased a brilliant distribution system that needs a massive technology investment. I view this purchase from pure IT finance and it's smart. The stores are a nice bonus, but the vertically integrated distribution system is the golden egg here.
posted by Annika Cicada at 8:05 AM on June 21, 2017 [4 favorites]
With Walmart buying Bonobos, AMZ could buy Sears to get tons of real estate and a clothing line with loyalty and a reputation for quality.
They would also get a company whose current owners have been systematically stripping it down for cash since 2005.
posted by ZeusHumms at 11:55 AM on June 21, 2017 [1 favorite]
They would also get a company whose current owners have been systematically stripping it down for cash since 2005.
posted by ZeusHumms at 11:55 AM on June 21, 2017 [1 favorite]
"This is not why companies exist. They exist to make money for shareholders."
"Companies like IBM, AT&T, Xerox, Digital Equipment, etc. used to do variations the same thing before showing accounting profits became more important to short sighted "investors" than innovation and sustainability."
Yeah, this. Even Neutron Jack Welch, king of shareholder value maximization, said shareholder value maximization, especially in short-term runs like yearly or quarterly, is a really fucking stupid way to run a company. The myth that companies exist to make money for shareholders, and only that, as their highest duty, is exactly that -- a myth, and a recent one at that that had little standing in the law in the US until quite recently.
It's good for rentier capitalists, but it's bad for companies and bad for society. We don't have to believe rentier capitalists when they tell us stories like "corporations exist to maximize shareholder profit, forever and ever, amen (PS don't look at anything dating prior to 1981)."
posted by Eyebrows McGee at 4:50 PM on June 21, 2017 [5 favorites]
"Companies like IBM, AT&T, Xerox, Digital Equipment, etc. used to do variations the same thing before showing accounting profits became more important to short sighted "investors" than innovation and sustainability."
Yeah, this. Even Neutron Jack Welch, king of shareholder value maximization, said shareholder value maximization, especially in short-term runs like yearly or quarterly, is a really fucking stupid way to run a company. The myth that companies exist to make money for shareholders, and only that, as their highest duty, is exactly that -- a myth, and a recent one at that that had little standing in the law in the US until quite recently.
It's good for rentier capitalists, but it's bad for companies and bad for society. We don't have to believe rentier capitalists when they tell us stories like "corporations exist to maximize shareholder profit, forever and ever, amen (PS don't look at anything dating prior to 1981)."
posted by Eyebrows McGee at 4:50 PM on June 21, 2017 [5 favorites]
Douglas Rushkoff, Fast Company: It’s Time To Break Up Amazon—With its mega-acquisition of Whole Foods, the retail behemoth moves to suck the value out of yet another market.
posted by Johnny Wallflower at 4:07 PM on June 22, 2017
posted by Johnny Wallflower at 4:07 PM on June 22, 2017
Sooner or later Amazon is going to branch into the military logistics market, and then we'll really have to worry.
posted by destrius at 11:27 PM on June 22, 2017
posted by destrius at 11:27 PM on June 22, 2017
Oliver Staley, Quartz: Is Amazon too big? What Jeff Bezos can learn from John D. Rockefeller
Amazon isn’t yet a monopoly on the scale of Standard Oil, which at one point controlled 90% of US oil refining. But massive tech companies like Amazon and Alphabet (née Google) have a similar impact (paywall), warping the US economy by swallowing up competitors, choking off access to their platforms, and fueling income inequality. Their immense size and the concentrations of wealth they produce is making policymakers nervous, and a backlash of some form may be brewing. Calls for regulators to check the power of the new tech giants are beginning to grow louder.posted by Johnny Wallflower at 6:41 AM on June 24, 2017 [1 favorite]
This piece does a pretty good job of laying out what, historically, has been ruled an antitrust violation and which has not, and makes the case that AMZN/WFM is not it.
Ready for a Monopoly Fight? Amazon and Whole Foods Isn't It
Ready for a Monopoly Fight? Amazon and Whole Foods Isn't It
But those spoiling for a monopoly smackdown and looking to the Amazon–Whole Foods deal as evidence will find little comfort in accepted antitrust law, which evaluates mergers based on impact to consumer prices, an area where Amazon excels. And while the merger will clearly allow Amazon to use Whole Foods’ stores to amplify its online power, it still won’t give Amazon a significant percentage of the grocery market. Amazon combining with Whole Foods would still only account for 3.5 percent of spending in an $800 billion industry. “Usually the bigger the market, the better it is for the merger,” says Geoffrey Manne, executive director of the think tank International Center for Law & Economics. (For comparison, a decade ago, the FTC tried to block a merger between Whole Foods and Wild Oats because the market they both belonged to was narrowly defined as "premium, natural, and organic supermarkets.”)posted by wemayfreeze at 11:11 AM on June 24, 2017
Folks aren't worried about the grocery market. As pointed out elsewhere, Bezos bought WF for the distribution network anyway. The problem is he wants a cut of everything sold everywhere.
posted by Johnny Wallflower at 12:35 PM on June 24, 2017
posted by Johnny Wallflower at 12:35 PM on June 24, 2017
John Naughton, Guardian: Tech giants face no contest when it comes to competition law
Just consider the numbers. According to New York Times figures for the US, Amazon now accounts for 43% of all online retail sales; half of all online shopping searches start on Amazon (eat your heart out, Google); in 2016, the company had revenues of $63bn from online sales – which is more than the next top 10 online retailers combined; it controls 74% of ebook sales, and is soon set to become the biggest clothing retailer in the US. AWS, for its part, has become a $10bn annual revenue business with more than 50% of big companies preferring it to rivals – market share is expected to reach 64% in three years.posted by Johnny Wallflower at 7:11 AM on June 25, 2017
By any common-sense yardstick, therefore, Amazon wields monopoly power and its activities should trigger action by regulators. The problem is that US antitrust (competition) law has long parted company with common sense. The rot set in when Robert Bork published The Antitrust Paradox in 1978, in which he argued that competition law had become too focused on preventing cartels, price-fixing and mergers that create monopolies, and should return instead to what he claimed was its original concern with protecting consumers. This view was then energetically promulgated by the influential Chicago Law School and seems to have become the conventional wisdom of competition authorities across the world.
Crudely put, the implication of the Bork view is that no matter how big or dominant a company becomes, if there’s no evidence that its dominance is harming consumers, then there’s no antitrust concern. And the digital giants that now dominate the landscape have driven a coach and horses through this loophole. Google and Facebook, for example, argue that since they are providing superb free services that are highly valued by consumers, then punishing them simply for their market dominance would amount to penalising excellence and efficiency.
Elizabeth Weise, USA Today: Is Amazon getting too big?
While customers have flocked to its low prices, speedy delivery and customer service, it’s a different matter for suppliers. Even as they benefit from instant access to a massive online customer base, Amazon's market size gives it the power to inflict increasingly tough terms on its partners, driving down prices and passing on the savings to customers.posted by Johnny Wallflower at 3:33 PM on July 3, 2017
“If people thought Walmart was bad, Amazon’s taken it to an entirely new level,” said Mark Coker, founder of SmashWords, an early ebook distributor. “They want to eliminate everyone who stands between the producer of the product and the store.”
Amazon declined to comment for this report.
Another concern: as more people enter the Amazon ecosystem, that makes it harder for producers to sell to customers outside it.
Lina Khan, a legal fellow with the Open Markets program at the New America Foundation, worries this will be detrimental to the economy.
“We have to ask whether there are costs to this dominance that we might in the long term regret,” she said. “Amazon has emerged as a gatekeeper. Are we comfortable with one company picking the winners and losers in e-commerce?”
There's little relief from anti-trust law because these laws focus on consumer welfare, which Amazon excels at, she said.
JASON DEL REY AND RANI MOLLA, recode: Amazon Prime is on pace to become more popular than cable TV
The implication here is not that Amazon’s Prime Video service is more popular than TV; the main reason most people subscribe to Amazon Prime is still the fast delivery of products.posted by Johnny Wallflower at 1:59 PM on July 10, 2017
But it is an indication that Prime is moving toward becoming a “no-brainer” for more than just wealthy Americans. To that end, Amazon has been courting lower-income American households with discounts for those on government assistance, as well as a monthly payment option for those who don’t want to cough up $99 for an annual subscription.
These growth tactics are important, since more than 80 percent of America’s wealthiest households already pay for Prime. And Amazon knows that Prime is the core of its retail business: Prime members spend more in a year than non-Prime members do, shop more frequently than others and price-compare less, according to studies.
" Amazon Prime is on pace to become more popular than cable TV
The implication here is not that Amazon’s Prime Video service is more popular than TV"
Because Prime costs me $99/year whereas cable TV wants to charge me $99/MONTH; at 1/12 the price, I can find plenty to watch on Prime even if we're just talking TV. (But also there's free books! And fast shipping! And other things!)
(I wish it would go back to offering me ebook discounts if I choose slow shipping, though, instead of USELESS prime pantry credits.)
posted by Eyebrows McGee at 5:21 PM on July 10, 2017
The implication here is not that Amazon’s Prime Video service is more popular than TV"
Because Prime costs me $99/year whereas cable TV wants to charge me $99/MONTH; at 1/12 the price, I can find plenty to watch on Prime even if we're just talking TV. (But also there's free books! And fast shipping! And other things!)
(I wish it would go back to offering me ebook discounts if I choose slow shipping, though, instead of USELESS prime pantry credits.)
posted by Eyebrows McGee at 5:21 PM on July 10, 2017
I wish it would go back to offering me ebook discounts if I choose slow shipping, though, instead of USELESS prime pantry credits
Wait six months, you'll be able to apply your prime pantry credits to same day whole foods delivery. Literally a free lunch.
posted by Diablevert at 9:07 AM on July 12, 2017
Wait six months, you'll be able to apply your prime pantry credits to same day whole foods delivery. Literally a free lunch.
posted by Diablevert at 9:07 AM on July 12, 2017
Mary Beth Quirk, Consumerist: Lawmaker Wants Antitrust Panel To Take A Closer Look At Amazon, Whole Foods Merger
U.S. Representative David Cicilline, the top Democrat on the House of Representatives Judiciary Committee’s antitrust panel, sent a letter [PDF] to the chairman of the Committee on the Judiciary and the chairman of the antitrust subcommittee, urging them to hold a hearing to consider whether the merger will harm consumers, workers, and small businesses.posted by Johnny Wallflower at 12:15 PM on July 16, 2017
He cites concerns that “the combination of Amazon’s competitive advantages in terms of size, consumer reach, and ability to absorb losses may discourage innovation and entrance into emerging markets, such as grocery and food delivery.”
Mary Beth Quirk, Consumerist: Amazon Spark: Like Instagram, But Dedicated To Convincing You To Buy Stuff
Have you ever found yourself scrolling through your Instagram feed and thinking, “Gee, all these photos of my friends’ meals and their feet are great; but I really wish every single photo was an ad for a product?” It just so happens that Amazon has something just like that.posted by Johnny Wallflower at 4:52 PM on July 19, 2017
Amazon’s new Spark feature is a photo feed that’s basically dedicated to getting Prime members to buy more stuff.
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