On Friday this article on Amazon jumped into my periphery and absolutely floored me. It’s basically an explanation of how Amazon is going to stop fighting with states about whether or not they should pay the sales taxes associated and instead create physical distribution centers there instead. I’d assume they would start in large MSA’s and for larger, less dense populated areas, have smaller satellite centers at key areas. The goal is to deliver any goods ordered on their site the next day as a standard and potentially the SAME day (perhaps as an upcharge).
I haven’t written much on Amazon previously (surprisingly) but I absolutely love their site. It’s informative and makes shopping very easy. So easy, in fact, that it’s preferable to going to a brick and mortar to try to find the items needed. Why do that when you have reviews in front of you and the ability to do it in your underwear? It’s made shopping better in many ways and the model has been emulated by many stores now such as Target, Walmart, Dick’s, Best Buy and many, many more. It’s a great model and the big box stores know that it’s a legitimate threat. Why do you think Target stopped carrying Amazon products? Pretty obvious move. Of course, taking out the Kindle from those stores isn’t going to stop the real threat, it’s more a small gesture to say “Hey, fuck you.” :-)
Amazon has been building a huge asset in their customer tracking for years now, optimizing their shipping ability and slowly but surely becoming the best logistics retailer in the world. It’s their core competency and their lead is daunting, maybe insurmountable. When you start to shop on Amazon, you learn how powerful and easy it is. It becomes second hand. And that’s what it is TODAY.
Now imagine if you could do all of this but get your goods as a default the next day every time. It’s pretty obvious to me that choosing something from home and getting it the next day is preferable to having to drive into a store, shop around, wait in line and have it in hand an hour to two later. Others may see it differently. The idea of being able to see things in person and touch them is big for a lot of folks. Yet I think the younger generations are more inclined to utilize the internet to shop for wares. The ability to have whatever you want in your hands the same day without actually leaving the house is a game changer. That term is thrown around a good amount, but I completely believe it. If Amazon does that, I’d bet dollars to dimes that Walmart and Target get into delivery within two years of the unveiling. It’s a strategy move, their business models are safe for now, but long term would be risky.
Amazon is a behemoth. Walmart and Target are also. Looking at their stocks today, market caps:
Target – 41B
Amazon – 98B
Walmart – 247B
At first I was surprised, then noticed that Amazon has a P/E ratio of 180 and the others have P/E ratios in the mid teens. The street is betting on the future for Amazon and I can’t say I blame them. They’ve made a lot of really impressive moves in the last five years, they are well managed and playing to win in the long term. The only thing that’s a significant worry for them is that they spend a lot of money attempting to create a new paradigm of purchasing for the US consumer (and later the world) while others simply emulate the model later. Their big assets and ability, customer information and logistical ability, will keep them above the fray and allow them to flourish.