Amazon.com now unstoppable?
Analyst says Whole Foods opens floodgates
Mark it down as another example of the f allout f rom Amazon. com Inc. springing a major disruption two weeks back by buying Whole Foods for US$13.7 billion.
Thursday, shares of the newly public Blue Apron, a meal- delivery service providing subscribers across the U. S. with weekly preportioned meals, started trading. The company was expecting to price the shares in the US$ 15- US$ 17 range: instead investors said US$10 was the most they’d pay.
The lower price for Blue Apron’s IPO comes after a major markdown for a slew of other retailers including department stores, apparel retailers, providers of luxury goods and retail REITs which have already been affected by Amazon, which started l i fe as an online bookseller but is now the world’s largest retailer with almost 50 per cent of U. S. online retail sales. Last week there was talk Nike might sell on Amazon.
Vancouver- based Barbara Gray, an analyst with the Pennock Idea Hub, has been studying the Amazon effect. Gray is a former sell- side analyst who has embraced the disruption world. Last year she wrote Ubernomics: How to create economic abundance and rise above the competition.
Her work is different from the norm: there are no earnings-per-share forecasts and no price targets. Instead she delves into the transformative new economy and the forces that have made companies rethink the way they approach their business. And the language she uses is different.
Gray, who has just completed a 47-page report titled ‘ The Unstoppable Amazon: An assessment of the rising structural risk along the retail shoreline,’ was in Toronto this week for a presentation. The paper’s cover shows a photo of the mighty Amazon River meandering through the jungle.
“Amazon will accelerate that disruption. It will create a huge vector of change ( a term recently used by Apple’s Tim Cook) for industries that lie along the shores of the three retail channels (structural, supplier and customer.)”
She argues the customer channel “has been blown open” by the acquisition of Whole Foods and Amazon “now has access to the structural channel ( that includes food and drug retail) and the supplier channel (which includes food distributors and household products.) Whole Foods gives Amazon a “great brand,” plus “bricks and mortar.”
Gray noted the acquisition occurred as Amazon is launching two other offerings: Prime Wardrobe (which allows a customer to choose from one million items, to try before they buy, to shop with an easy return policy and with lower prices); and Dash Wand (a hand- held device that adds items to your cart on Amazon.)
Gray is impressed with the power of Prime Wardrobe — not available in Canada — claiming it will “destroy even more department stores and apparel companies. It’s the branding. Now they can push this to consumers.” Amazon already has 80 million Prime customers in the U.S.
Gray draws a connection to the car companies of today with the PC makers of the 1990s and illustrates via a pyramid: the bottom third is the manufacturing; the middle third is the software and the top third is the data and the artificial intelligence. “Amazon has mastered the top two layers. But they were missing the foundation.”
What’s next? Gray believes Amazon will delve into online meal- kit and mealdelivery service; drug retailing and a greater push into consumer- packaged goods. But history is replete with examples of market leaders who drop the ball.
The 43 analysts who foll ow Amazon agree with Gray’s assessments: 37 rate it a buy and six a hold with a 12- month target price of US$1,133. It closed Thursday at US$975.93.