Malls? Amazon Has All I Need!
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s December! December is typically the only month of the year that I head off to the mall in order to pick up some Christmas gifts for family and friends, and this year was no different. My shopping trip today reminded me of why I typically buy everything from online stores like Amazon (NASDAQ: AMZN) rather than the retail setups of GameStop (NYSE: GME) or Best Buy (NYSE: BBY).
The goal was simple: I wanted a camouflage PS3 controller. Although I don't go out shopping too much I knew that the best place to pick up any gaming accessories, by definition, is GameStop. GameStop did not have the controller that I wanted; in fact, they were out of a bunch of different controllers that they were showing stocked on the floor.
Well if GameStop is out, Best Buy must have it. After all, they’re a lot bigger and they sell gaming accessories too. But of course, Best Buy didn’t have it either.
The most obvious business problem here is that GameStop, which makes its money selling video game related products, was without a common product. I believe that by 2014 the only real purpose of a GameStop will be to sell hardware and accessories. If they can’t even get the accessories part right at this stage, then they have a big problem on their hands.
Meanwhile Best Buy, being an electronics superstore, gets off easy on the controller matter. However, I did note that there were surprisingly few people in a store of its size. It was clear that the employees outnumbered customers at this particular store, at a time I would consider peak. This can’t possibly bode well for margins at the struggling electronics retailer. I wouldn’t have been shocked at all if someone told me that the store was paying out more to employees than it was bringing in with sales. Factor in the lights, rent, and taxes, and I think the reason Best Buy is struggling financially becomes clear.
After arriving home I immediately logged onto Amazon. In the search bar I typed what I was looking for and there it is right away, at a discount no less! It will be delivered for free to my door in two days thanks to my Amazon Prime membership.
How can this service be beat? Even without a Prime membership, shipping is free. It will be here in time for Christmas and I've even saved some money.
If you want to invest in the retail sector for the long-term, I think that Amazon may be the place to do it. This is obviously a growth play, as the Amazon price-to-earnings ratio is currently well over 3,000.
I will probably never go out to get gifts again. Amazon has made it far too easy for the customer to get what they want, at a low price, and it is shipped straight to your door. Is it any wonder that the retail giants of years past are now struggling financially? I don’t think so.
What to do?
I would definitely sell focused retail stores at this point. I don’t see them continuing on at their current levels. Stores like Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) will continue to do well with everything under one roof. I think that Amazon and other online retailers will eventually take the life fully out of focused retail stores, with the exclusion of hardware stores like Home Depot, as consumers will always need some sort of specialist to help out.
Wal-Mart will continue to thrive in the United States, and over the next five years I think they’ll continue to open new branches in order to ensure that everyone lives within a decent distance of a Wal-Mart. They also have a great international following, which is expanding at a much faster rate than the company is in the States.
Target will continue their expansion in the U.S. over the next few years and will continue to build bigger stores in order to make sure that consumers can find everything they need. Target will also begin their expansion internationally, which should help give the stock price a pop. Quick word of warning on Target, though; they have over $30 in debt per share.
As for Amazon, its extremely overvalued for me, but some people may wish to look at it for the growth potential that it offers. I don’t think there is anything stopping Amazon from becoming one of the world’s biggest retailers in the long run. But for now this company is trading at over four times its total assets and around fourteen times equity. On the bright side, the company has only a little debt with more than enough cash to cover the payments, and still has lots room to grow.
Ash1402 has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Best Buy, and GameStop. Motley Fool newsletter services recommend Amazon.com and GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!