Finally ! Amazon admits defeat
Make no mistake, "Amazon go" is an admission of defeat by Amazon. The grand vision of replacing bricks and mortar with online click and deliver has turned out to be a pipe dream.
Harsh reality After 20 years, Amazon's investors have woken up to a harsh reality. With over US$120 billion in revenues, Amazon's profitability is a fraction of much smaller bricks and mortar retail stores.
More profits quicker offline While a decently run corner shop grocery store rings up 6-10 cents of profit on every US$1 of revenue, Amazon scarcely returns a cent of profit on every US$1 of revenue. It takes a corner shop store 1-3 years to turn this level of profit, yet it has taken Amazon almost 20 years of losses before seeing any level of profitability.
If you can't beat 'em join 'em Amazon delivered on the promise of becoming a goliath of online but in doing so it could not answer the corner shop store's sling of quicker profits. So the goliath joined the ranks of its adversary, in the ultimate gesture of admission of defeat.
Epic betrayal Amazon's pivot to bricks and mortar is an epic betrayal of its investors that have been patiently awaiting returns for over two decades.
Amazon dazzled its naive constituents with stories of vanishing overheads like, store rental, check out clerks, in store staff etc since the entirety of the bricks and mortar expenses were to be replaced with an online front in cyber space. What it failed to mention was that those vanishing overheads will be replaced with even larger expenses associated with technology and logistics.
Near zero margins for over two decades In order to attract customers en-masse Amazon has had to operate at near zero margins for over two decades.
To illustrate how dismal the profitability picture is at Amazon, consider the following : Walmart generated over 6x the profit that Amazon has generated in its entire 21 year history!
The pivot to offline is admission of defeat Now that everyone has woken up to the reality that those elusive online margins promised for so long may never arrive, some adjustments may be required. The first one is the PR and advertising campaigns surrounding Amazon go. They are the smoke and mirrors to deflect attention from the glaring irony that the world champion of online commerce has joined the ranks of bricks and mortar. To hide its shame, Amazon has labelled this move as the future of retail with a straight face. So there we have it Amazon admits that the future of retail remains bricks and mortar and there is applause from every direction. Am I the only one awake here sleeple ?
Will the value adjust The balance of the adjustment will have to be made in the valuation of Amazon, particularly the price earnings ratio.
Amazon has traded at an average PE ratio of 711.69x earnings over the last 5 years !
Walmart in comparison has traded at a PE of 15x earnings over the same period !
You do the math !!!
Such inflated expectations are normal at the peak of a bubble, but not during times of sanity.
The last time I remember stocks traded at such insane valuations with impunity was back in 1999. I also remember the severe pain that followed shortly after.
Amazon and its investors have been trading in an insulted bubble of their own self congratulatory reality. That bubble is looking increasingly vulnerable to the return of sanity.
Remain perched at your own peril !
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8 年Why top ranked funds don't own Amazon https://www.dhirubhai.net/pulse/why-top-ranked-funds-dont-own-amazon-omer-alvie?trk=pulse_spock-articles
Digital Marketing Expert. All views and opinions are my own
8 年You can't compare Amazon to Walmart simply because Amazon operates in an industry as young as 20 years, while Walmart's industry is one of the oldest in humans' history. Ecommerce is still new and fairly underdeveloped, and much more needs to be done, but we cant claim that its not the future of retail because of Amazon's so called "failure" to create profits as expected. Think of certain products like books, DVD's, airplane and hotels reservation and cinema tickets. Selling of these specific product has transitioned almost completely to online in relatively such a short period, and more and more products will see the transaction, some faster than others.
Vice Chairman & CEO | MBA from IMD
8 年the article is a good conversation in business strategy but needs more depth.. 1-talking investor returns, dividends are the not the only form of returns investors look for- capital gains (the positive change in price over time) is much more coveted by Investors. And Amazon has delivered huge capital gains to its investors over years. today the stock trades at 817 USD per share..this is more than 200X (that 2000%!!!) the price in early 2000.. 2- Amazon, like any great company , seeks to understand the various ways its model can be defeated..and it can afford to that..so is testing pilots and seeing what works in addition to its original model. nothing wrong with this.. good strategy ..pilot and test.. 3- Amazon becoming asset heavy will be something for future to tell us if is wrong or not..Alibaba is asset light and doesn't think of doing any physical assets..
Marketing Manager, Social Media Manager, PR, Events Manager, Media Production, WEB 3.0, Crypto & Gaming
8 年Amazon Go is trying to disrupt the conventional way of store shopping. You have to innovate to stand out. The mere fact that you're writing about Amazon Go means that they are doing a good job at thinking outside the box and going against the current otherwise people wouldn't be talking about it
CEO - Shipa Ecommerce at Agility | Digital Logistics
8 年This headline is delusional.....you're totally missing the point about Amazon Go....they've taken One-Click to a new 'real world' level of experience.