Ten Threats to Amazon
Amazon (NASDAQ: AMZN) looks like an unstoppable retail force but is it? Are there companies or forces that can block the Everything Store’s march to total retail domination?
There are some obstacles that might thwart Jeff Bezos’ empire building. A few companies capable of competing with or at least holding their own against Amazon’s ecommerce juggernaut also exist.
The Biggest Threats to Amazon Include
- Uncle Sam – There are a number of ways that the United States federal government can unravel Amazon’s Empire. An obvious one would be with an anti-trust lawsuit or an investigation by the Federal Trade Commission (FTC). Theoretically the FTC has the authority to order Amazon to divest of parts of its business or regulate it. Other federal entities that can make life rough for Amazon include the Federal Communications Commission (FCC), the Justice Department and Congress. Expect to see major political attacks on Amazon if the retail apocalypse gets worse; and jobs and sales tax keep disappearing across America.
- Walmart (NYSE: WMT) – Walmart has demonstrated it can compete in ecommerce its online sales grew by 63% during first quarter 2017. It has vast resources from the $487.51 billion in revenue it reported on April 30, 2017. The greatest threat here is Walmart’s ability to deep discount. Walmart’s capacity to quickly embrace new technologies and strategies such as same day delivery and instore pickup. Major dangers include Walmart’s alliances with Uber and Lyft and its use of employees to deliver orders. Walmart’s 4,672 stores in the US might be its most potent weapon, allowing it to build what are effectively local fulfillment centers in every neighborhood and town in America.
- Netflix (NASDAQ: NFLX) – Netflix loses money like crazy but it has built up a global platform for delivery of digital products. A danger is that Netflix might start selling products like video games, software, insurance, or financial services in addition to video entertainment. Another is that Netflix might team up with a retailer to start selling goods through its platform. A grave danger for Amazon would be Walmart or Alibaba buying Netflix and offering a Prime type delivery and entertainment option through it.
- Google Express – Alphabet’s (NASDAQ: GOOG) delivery service harnesses the power of major retailers including Costco Wholesale (NASDAQ: COST), Walgreens (NASDAQ: WBA) and Whole Foods (NASDAQ: WFM). Its geographic reach is limited but Google Express is developing a strong delivery capability. The real danger to Amazon would be an alliance between Google Express and a retail giant such as Walmart or Kroger. Self-driving vehicle technology might enable Alphabet (NASDAQ: GOOGL) to create a nationwide delivery ecosystem. Alphabet’s self-driving vehicle startup Waymo is helping Fiat Chrysler (NYSE: FCAU) develop a self-driving minivan that would be a great delivery vehicle.
- UPS (NYSE: UPS) and FedEx (NYSE: FDX) – Amazon’s dependence on these delivery giants is its’ Achilles’ Heel. Currently these companies have a stranglehold on home delivery that lets them charge high rates. Other dangers here include labor unrest; UPS is a union shop controlled by the Teamsters, and oil prices. A major danger Amazon faces is a dispute with either company that would leave it without local delivery options in large areas of North America. That would be fatal if Walmart delivery was still available. Another danger is FedEx and UPS offering fulfillment services to retailers directly. FedEx is doing that and competing with Amazon.
- The U.S. Postal Service (USPS) – The Post Office is a problem for Amazon because a large percentage of its products are still shipped through the mail. A grave danger is Congress’s starving of the USPS of resources. Another would be efforts by Republican ideologues to privatize the Post Office. Any major disruption of the mail by a strike or federal action would be catastrophic to Amazon. Even a simple change in postal rates such as abolition of Media Mail (book rate) might put a serious damper on Amazon’s business.
- Kroger (KR) – America’s largest standalone grocer is a potential menace to Amazon because of its massive footprint; which consists of more than 2,778 supermarkets and 784 convenience stores. Kroger is already in a wide array of businesses including jewelry and furniture sales. It is also experimenting with same-day delivery, grocery pickup and Uber Delivery. A major threat to Amazon would be Kroger teaming up with Google Express or Alibaba to offer a full range of ecommerce products. Like Walmart, Kroger operates thousands of stores that can serve as neighborhood or local fulfillment centers.
- Alibaba Holdings (NYSE: BABA) – The prospect of Alibaba successfully competing directly with Amazon in North America is unlikely. The danger comes in developing markets where Alibaba has more experience. That includes India, South America and Africa. The danger in North America would be an alliance between Alibaba and an established retailer with a large footprint such as Kroger or Target (NYSE: TGT). A serious threat to Amazon might develop if Jack Ma were to buy the ailing Target and its online infrastructure. Alibaba’s dominance of China gives it the cash to make a lot of acquisitions.
- Uber and Lyft – The danger the privately held ridesharing unicorns is that their technology can be a perfect mechanism to facilitate delivery. Like Google Express their apps can be used to quickly create a delivery system based on local stores. Uber is already working with Kroger and Walmart, and Lyft is working with Walmart. A major danger for Amazon would be if Lyft or Uber were to collapse and get gobbled up by Alibaba or Walmart. Another problem might be an Uber-Alibaba alliance. Uber in particular is moving towards delivery because its capacity for expanding ridesharing is limited. Uber Freight is another problem because it can be used to distribute goods to local drivers.
- Jeff Bezos – It is unclear if there is any sort of succession plan at Amazon or if Jeff is replaceable. An interesting question that all Amazon shareholders need to ask themselves: is can the Everything Store operate without Jeff? It is his company based on his vision; Walmart was able to thrive without Sam Walton, but recent events at Sears show us how quickly a great retailer can be devastated by bad management.
Even though Amazon is a great company it is not immortal or invulnerable. Like any company Amazon is vulnerable to competitors and market forces.
