Amazon Getting Worse or Even Better?
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The largest online retailer, Amazon.com (NASDAQ: AMZN), has a crucial week consisting of two dramatic events. One event may be looked at as a potential booster; the other will be quite a big challenge. Amazon is one of those finest companies which rocked the entire market with its presence and captured a number of industries, rewriting a new order. Its growth has been phenomenal due to its interesting business model that has attracted customers galore.
In a recent article, I had touched upon how the online giant is out competing electronics retailers such as Best Buy (NYSE: BBY) by offering low prices and convenience of shopping at home, which is pulling shoppers away from the conventional stores who are dragged down by huge store maintenance costs. It affected the retailers so much so that Best Buy experienced a 41% drop in earnings in its recent quarter.
Well, the problem is not unique to Best Buy or the electronics industry alone. Amazon’s large online presence in a number of sectors has affected retail giants such as Wal-Mart (NYSE: WMT) and the bookseller Barnes & Noble (NYSE: BKS). Wal-Mart and its peers have fallen prey to “showrooming,” where customers see the products and try it in their stores and end up buying it online at Amazon. But Wal-Mart has managed to fight this to a large extent by making its online presence strong and providing customers with the ease of picking up products from the nearby stores.
Barnes & Noble, on the other hand, is experiencing decreases in foot traffic at its bookstores since customers find it easier to read it online at a click of the mouse without the hassle of carrying a book each time. It is great to see a company getting so big that it can give competition to all.
End to a Brilliant Advantage…
But these retailers are now at the time of merrymaking since there is some respite in their miseries with the government’s ruling of sales tax to be imposed on Amazon. Till now, Amazon enjoyed the avoidance of tax since it did not have a physical presence and this benefit was passed on to the customers by way of reduced prices. This particularly benefitted the shoppers with their large purchases such as electronics where non-payment of tax reflected as a large discount on customer’s pockets even if it meant waiting for two days for delivery.
However, the retail giant has not surrendered yet. To continue attracting shoppers to its online store Amazon has been planning to open new distribution centers in regions such as Texas and California which will make its products available to the shoppers on the same day itself. This will be another knock down on retailers such as Wal-Mart since they were enjoying the advantage of same day delivery till now catering to the instant needs of the customers.
In fact, the online retailer is also planning for availability of in-store lockers in partnership with some retail stores such as 7 Eleven. Through this customers will be able to pick up their deliveries at their convenience. Hence, this might not be an end to the traditional retailers’ miseries since Amazon’s physical presence will make the competition even tougher.
Another Strength Waiting to Sizzle the Market…
A major event awaited by many is the launch of the all new Kindle Fire in the coming week along with an improved version of the original Kindle Fire tablet. The 7 inch tablet will be probably hitting the market just a week before Apple’s (NASDAQ: AAPL) iPhone 5 launch. Moreover, Apple intends to launch an all new small version of its tablet which will stand in direct competition to other smaller tablets, Kindle Fire being one of them. But the launch of this mini tablet is still awaited and not confirmed yet.
Amazon’s new Kindle Fire will be ad-supported and is largely content driven. Though the price of the iPad mini is still unknown Kindle Fire will be quite cheap since the online giant is popular for its lowest price tablets which have captured the market largely. Its launch of Kindle Fire last year was in the fourth quarter and this time the launch will be in the third quarter. Hence, the company will benefit from windfall gains of the new launch.
However, it will be interesting to see the competition getting stiff with a number of products launches this month. The fact that the original version of Kindle Fire brought enthusiasm among customers so much so that it was totally sold out is an indication that Amazon is going to set the market on fire even this time. Also, the new Kindle Fire will not be limited to the U.S. market but will be available internationally which will open new avenues of revenue growth for Amazon.
The Takeaway
Online business has picked up pace pretty fast and particularly Amazon, which has led the change through its diversified presence. Its continuous product innovation has driven its top line each time. The online retailer has managed its business model quite efficiently and is expected to do so even in future. Its strategy of expanding its distribution network will strengthen its physical presence making its delivery network even stronger.
The growing physical presence can pose q huge threat to the traditional retailers and make competition tougher. On the other hand, this will fill in remaining gaps in Amazon’s model. The third quarter will be interesting to witness especially with the new launches for Amazon and its growing competition from all fronts. I believe investors should never get rid of this stock.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Best Buy. Motley Fool newsletter services recommend Amazon.com and Apple. 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.If you have questions about this post or the Fool’s blog network, click here for information.
