Amazon to RadioShack: “You Complete Me”
Karl is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While the benefits of merging with RadioShack (NYSE: RSH)would benefit many retailers and non-retailers, those benefits are are a simple few generally oriented to displaying and selling products. The benefits to Amazon work differently given its near total absence from our traditional physical retailing realm. Obviously Amazon (NASDAQ: AMZN) doesn’t have a multitude of retail stores, but it also lacks much of the infrastructure dedicated to retailing which includes:
- Few slicks in newspaper deliveries except during the holidays
- Few billboards
- Few television ads beyond those for the Kindle
- Modest online direct advertising, not including that placed by its affiliate workforce
- Minimal traditional “sales” efforts accompanied by requisite magazine, radio and television campaigns; media appearances; product placement, etc.
- While it does conduct a version of discount sales through Goldbox deals, and does offer discounts on occasional items, the majority of those sales are accessed via email, online affiliate advertising and directly on Amazon controlled web sites as product placement and advertising.
Amazon doesn’t seem to suffer much from the lack of these traditional trappings. Rather, its two most significant problems right now are its fending off the looming imposition of sales taxes and reducing the impact of shipping costs to itself and its customers.
State fiscal crises and sales tax fairness arguments - or bricks and mortar competitor sour grapes depending on who you ask - are pushing the online versus offline sales tax differential issue to a head. While the Internet Tax Freedom Act theoretically allows online retailers to remain tax free until November 1, 2014, Amazon has had an increasingly hard time cutting long-term tax free deals with states. For example, a deal it cut with California in 2011 allows Amazon purchases to be tax free only until “at least September 2012.” A similar compromise pushes Pennsylvania’s collection back to September 2012, as well. Not so lucky are Pennsylvania Amazon customers, where the “use tax” on purchases which were not taxed at the time of sale is now being enforced for 2012 and beyond.
For many more purchases, this tax tidal wave will means that sales tax avoidance will no longer be as significant a differentiator between online sales and bricks and mortar purchases. Add shipping costs to an online purchase and the value proposition may lean back toward physical stores for many consumers. Once this is the case, a most significant reason not to maintain stores disappears for virtual retailers with Amazon as the largest.
Keeping shipping costs in check also has Amazon constantly working on solutions. Amazon Prime was developed to create additional loyalty and stickiness to Amazon’s offerings while defraying its cost of shipping. Super Saver Shipping has been a longstanding tool for creating dedicated worry free shopping on Amazon; and to boost the tab on each purchase. More recent experiments show that Amazon is considering a shipment consolidation strategy as seen in its 7Eleven locker trial and its ongoing locker program which may include non-7Eleven locations. A natural extension of its shipping experimentation would be more deeply embedded partnerships, for example with UPS Store locations, or the purchase of its own locations.
Some argue that Amazon should take the “Store-within-Store” route first, then move on to a retail footprint. However, given the confluence of events around its tax situation and increasing competition with Google, Apple and Microsoft, waiting may not be the preferable option.
Amazon will also accrue many other benefits from the purchase of RadioShack. As its line of Kindles grows, it will find a quality hands on and sales venue increasingly valuable. In addition, it has been slowly and quietly been building its own brand line, AmazonBasics, which could be the foundation for a push into branded retailing. Stores are a natural showcase for owned brands.
Imagine one day going in to your local Amazon store, asking for a box of Larabars or a Schottky Diode, the helpful employee would say “We don’t have that dongle / thingamajig / widget / doohickey / product in stock, but can get it here in two weeks, or two days with Amazon Prime!”
While stores do violate the “stick to your knitting” rule of business and life, perhaps “Anything, anywhere, anytime” needs to become Amazon’s new servicemark.
Kobalt owns shares of RSH and AMZN. The Motley Fool owns shares of Amazon.com and RadioShack. Motley Fool newsletter services recommend Amazon.com. 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.