Amazon: 'Wal-Marting' of Everything
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Amazon’s (NASDAQ: AMZN) business model mirrors Wal-Mart’s (NYSE: WMT): the mashup of technology and discount pricing. No one knows how much this will disrupt business-as-usual. But there's plenty to speculate about.
Wal-Mart pioneered electronic management of global supply chains which kept inventory lean. Its low price points made it difficult for traditional retailers to compete. Some hammered Wal-Mart for pushing out the little guy. That big box is growing while much brick and mortar retail continues to decline. Simultaneously, it also aggressively focuses on its online business. The irony is that the Internet was going to deep six a lot of retail, even without Wal-Mart.
Amazon has been "Wal-Marting" categories and brandnames as diverse as tablets by Apple (NASDAQ: AAPL), book production by HarperCollins, a News Corp subsidiary (NASDAQ: NWS), and distribution by the brick and mortar arm of Barnes & Noble (NYSE: BKS). Like Wal-Mart, Amazon has met resistance, even ridicule.
Technology snobs, for example, have attacked its Kindle Fire, which comes in only one model and sells at Best Buy in North Haven, Connecticut for $199. It’s directly positioned against the Apple iPad which comes in a number of models and sells at that same store for $499 to $899. Despite some negative reviews the Kindle Fire, documents FORBES, “is selling like hot cakes.” In addition, the sales will boost Amazon’s thin margins. At this stage of the game, Amazon has gone for market share. Kindle Fire in so many hands will also lead to increased sales of Amazon everything, ranging from games to videos. Beginning with Kindle Fire, the gadget world could go binary: the low end or what's good-enough represented by Amazon and the high end or what's exotic represented by Apple.
In book production and distribution, Amazon took aim at how old-line companies ignored the business and focused on the art. Sure, the elite establishment is pushing back on Amazon’s efficient end-to-end process, which begins with signing up brandname authors, overseeing publishing, setting the low price point and digitally getting the book out there. In the midst of this revolution, it has shown it knows when to hold and fold. It did the latter with Macmillan about pricing in 2010, according to BLOOMBERG BUSINESS WEEK . Likely, with its growing influence and power, it won’t have to cave too often. Unless Amazon exits this line of business, traditional publishing and distribution channels are kaput. In essence all the e-companies such as Apple and the Nook branch of Barnes & Noble would duke it out. Probably the best marketer, not the most savvy in technology will wind up the leader.
Amazon is continuing to add categories such as cloud computing. Wal-Mart is also expanding its menu of products and services. Currently, it is exploring developing partnerships with primary care medical providers for delivery of healthcare services through its brick and mortar retail locations.
Amazon’s earnings report on January 31st is expected to bring good news. Based on that, Trefis estimates the stock price will go up to $233. On Friday, it closed at 195.37, with a 52-week range of 160.59 to 246.71.
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