Tuesday, August 29, 2017

(The Big Disrupt) Amazon: The Retail Apocalypse Has Begun In Earnest

Much, maybe too much, has been written about the so called "Amazon effect" and, as Walmart, Kroger and Target have found out for the nth press release running, every word has been justified. And with the recently approved acquisition of Whole Foods and the subsequent price cuts across popular items, life will become even harder for big box retailers already under pressure to drop prices by German discounters Aldi and Lidl. 

Add to that Amazon already slashing prices left and right for Amazon Prime members and is already selling Amazon echos in selected Whole Foods stores, Amazon's plan to take over the massive grocery market has begun in earnest.   

However, Walmart, Amazon's principal competitor in the marketplace, haven't been sitting around twiddling their thumbs as they announced partnership with Amazon's bitter rival Google to sell their products via Google's AI assistant Google Home as well as Google's e-commerce offering, Google Express.
This is a brilliant move for the Bentonville based big box retailer as it gets its expands its reach online as well as in the home in one fell swoop but take a closer look at factors surrounding the deal, the new relationship between Google and Walmart looks highly reactive. Despite Google's considerable strengths in language processing and machine learning, Google Home is a distant second to Amazon's Echo and with Walmart drawing a clear line between them and Amazon forcing vendors to take sides, A deal with Google was the only option worth entertaining. 

Nonetheless, the new Google relationship will almost definitely see Walmart continue to its impressive growth online which is currently at faster pace than Amazon. However, as Amazon continues to slash Whole Food's notoriously high prices, starch inefficiencies up and down Whole Foods's supply chain and then establish Amazon Prime as Whole Foods defacto loyalty program, it only a matter of time before Walmart and other start to bleed market share to the Seattle based company as Amazon will be able to match or undercut grocery retailers across whole food ranges while expanding and retaining its prime subscriber base at sky high rates with perks no retailer can match whether its NFL games or Amazon Prime Videos' growing selection of acclaimed movies and original tv shows. 

What this all means is we're at the beginning of a major disruption where we see large and well-run companies like Walmart bleed market cap and market share at levels unseen to one company. Indeed, the bleeding has already started with Walmart, Kroger, and Target losing billions in market cap in the last two months because a company that's barely a blip in their marketplace put a few well-timed press releases. 

Because of this, Amazon is a game changing antitrust case waiting to happen as it forcing CEO's in a growing number of industries from sports apparel to Pay TV to address the Amazon question. However, it's hard to see Amazon getting broken up as US antitrust law protects consumers, not producers. With that in mind, the FTC will have a hard time breaking up a company that's a deflationary force in just about every market it enters.  

Indeed, this is what makes Amazon so scary as they use their considerable resources to lower prices while spending heavily on improving its products and services forcing even market leaders like Netflix and Walmart to match them on both fronts. Unlike Amazon, most companies cannot do this for sustained periods of time and get away with it without Wall street punishing them every quarter which gives Amazon an edge in just about every market it feels it can win or compete in effectively. 

In sum, the last four days are the first steps into a world where one member of the four horsemen (Google, Apple, Facebook, Amazon) takes centre stage and the smart money is that Amazon stays there.  

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