Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Amazon (AMZN) owns Retail, can Anybody Compete?

The numbers are clear Amazon (AMZN) owns retail in the 21st century. Thus we need to ask can anybody compete with Amazon.

Those who doubt the proposition Amazon owns retail need to look at the numbers. Financial numbers, e-commerce data, and rankings all tell the same story. Amazon (NASDAQ: AMZN) now owns American retail off and online.

For instance, was the top online store in the USA with $52.8 billion in sales in 2017, Statista estimates. Tellingly, Amazon’s sales were nearly five times larger than the nearest rival Walmart (NYSE: WMT). To clarify Statista calculates had $14.01 billion in sales in 2017.

Only Walmart can compete with Amazon (AMZN)

Moreover, the total 2017 sales of nine of the top American online stores combined were nearly $9 billion less than Amazon’s sales. In detail, those retailers were Walmart, Apple (NASDAQ: AMZN), Home Depot (NYSE: HD), Macy’s (NYSE: M), Target (NYSE: TGT), Kohl’s (NYSE: KSS), Costco (NASDAQ: COST), and Wayfair.

Thus the only company that can sort of compete with Amazon in America is Walmart. Therefore, critics who fear a retail monopoly or duopoly in the United States have a valid point. Thus Two gigantic companies are in a position to dominate online retail and nobody else can compete.

Notably,’s 2017 revenues were over twice the size of the next largest online retailer: Apple. For the record, generated $14.01 billion in sales and Apple generated $6.27 billion in sales in 2017.

Frighteningly, a company has to be the largest retailer in the world, or the most valuable corporation on Earth to compete with Amazon. Cynics will say other retailers do not stand a chance if Apple and Walmart cannot compete with Amazon.

Will Amazon Go Own Brick and Mortar Retail?

It should scare brick and mortar retailers because Amazon Go could generate profits similar to Amazon itself.

For instance, Amazon Go could generate up $2,700 a square foot in annual sales per square foot, Brick meets Click, claims. In contrast, Costar estimated Walmart’s annual sales-per-square foot was $325 in 2018.

Thus Amazon Go’s sales per square foot could be seven times those of Walmart’s. However, the Apple Store’s sales per square foot were nearly twice Amazon Go’s at $5,546 in 2017.

Is Amazon Go Really Outselling Walmart?

If Brick Meets Click’s claims are true, Jeff Bezos has a new money machine that could be as lucrative as Amazon itself.

To explain, Amazon Go is the cashier-less convenience store Amazon is rolling out in the USA. Current plans are the Everything Store to open 3,000 Amazon Go locations in the next few years.

Brick Meets Click’s numbers are questionable because they represent the sales of one Amazon Go location in Seattle. Thus, novelty could drive much of Amazon Go’s sales. Therefore, Amazon might not duplicate the Seattle numbers.

Amazon Go’s numbers are impressive because it is a fraction of the size a Walmart Supercenter. Additionally, Amazon Go sells a limited selection of groceries and ready-to-eat food, Motely Fool contributor Rich Duprey points out.

Conversely, Amazon Go sells none of the big-ticket items that abound in a Walmart Supercenter. For instance, there are on TV sets, refrigerators, washing machines, jewelry, smartphones, chainsaws, and lawn mowers at Amazon Go.

Also there are only a handful of Amazon Go locations and 5,358 Walmarts in the United States. In detail, Walmart operates 597 Sam’s Club stores, 400 discount stores, 800 Neighborhood Markets, and 3,561 Supercenters, Statista estimates.

Thus Amazon’s numbers are impressive but it has a long way to go match Walmart’s sales per square foot. However, given the Everything Store’s record in ecommerce, I take Amazon Go seriously. Jeff Bezo’s company is a fierce competitor that has a habit of delivering on its promises.

Other retailers are already Imitating Amazon Go?

Amazon Go is not as revolutionary as the blogosphere claims. Notably, Amazon is  imitating a long-standing trend in American retail with Go.

The trend is to develop smaller specialty, stores that concentrate on sales of specific lucrative items. Interestingly, the leader here is the Apple Store which has a laser-like focus on high-end electronics.

In fact Companies as diverse as Tesla Motors (NASDAQ: TSLA), Kroger (NYSE: KR), Macy’s (NYSE: M), Best Buy (NYSE: BBY), Microsoft (NYSE: MSFT), and Nordstrom (NYSE: JWN) are imitating the Apple Store. For example Tesla has been selling cars through Tesla Stores and Galleries in Nordstrom and malls for years.

In addition, Macy’s operates Bluemercury a high-end spa and cosmetics store. Moreover, Nordstrom is developing Nordstrom Local which combines a spa and tailoring with pickup for ship-to-store orders.

Not be outdone, Kroger operates Fred Meyers jewelry stores in its Marketplaces. Meanwhile, Best Buy lets Apple Stores into its electronics stores. Even Microsoft operates brick and mortar Microsoft Stores.

Under these circumstances, Amazon Go is the Everything Store’s participant in a long-term retail trend. Thus, Amazon is an innovative retailer rather than a revolutionary force.

The Danger to Retailers from Amazon Go

Amazon Go is a massive threat to traditional retail because the Everything Store has the cash to make the concept to work.

For instance, Amazon recorded $20.425 billion in cash and equivalents on 30 September 2018. Conversely, Kroger recorded $361 million in cash and equivalents on August 18, 2018.

Therefore, Amazon has the money to equip, staff, stock, and open thousands of Go locations. Importantly, the Everything Store can open hundreds of Go stores without borrowing money.

To add icing the cake, if Amazon wants to issue debt; or borrow money, it will pay lower rates because of the cash. Amazon’s borrowing costs are low; because it recorded $9.348 billion short term investments on 30 September 2018. Therefore, Amazon had $29.765 billion in the bank on that day.

Hence, Kroger will have to borrow money or sell assets if its managements want to open cashier-less convenience stores. Moreover, Nordstrom will have to borrow to open large numbers of Local locations.

Telling, Nordstrom recorded $1.343 billion in cash and equivalents on August 4, 2018. Additionally, neither Kroger nor Nordstrom reported having any short-term investments at the end of 3rd Quarter 2018.

How Retailers can compete with Amazon Go

Under these circumstances, the real threat from Amazon Go is not the new technology, the concept, or the Amazon name. Instead, it is Amazon’s cash.

Hence, Best Buy and Nordstrom’s strategy of teaming up with other retailers makes more sense than opening standalone smaller locations. For instance, Best sells Apple phones and Amazon TVs in its stores.

Thus, a smart strategy for Kroger is to invite the Tesla Store, the Microsoft Store, Nordstrom Local, Bluemercurry, the Apple Store, and potentially Amazon Go; or an Amazon Fire electronics store, into its Marketplaces. Additionally, a smart move for Nordstrom will be to develop combination Nordstrom Local/Apple or Nordstrom Local/Amazon stores in urban areas.

Amazon is changing the face of American retail with its size and cash. Investors must pay attention because Amazon Go could totally disrupt brick and mortar retail in America and beyond. Thus Amazon owns retail in America for the foreseeable future.