In the beginner’s mind there are many possibilities, but in the expert’s there are few.Shunryu Suzuki, .
Farhad Manjoo has an interesting article about Amazon in today’s New York Times.
(Disclaimer: I don’t know anything about retail. Or, wholesale or fulfillment or a wide variety of other aspects of business. I’m just kibitzing here.)
It is Jeff Bezos’s patience that has been the key to Amazon’s rise to dominance in online retail, at least according to Manjoo. And, I won’t argue with him because lack of patience, the obsessive focus on the current quarterly performance, was one of my big complaints during my seven-year tenure at a multinational, publicly traded firm.
The value of Amazon’s shares doubled in 2015. This was not supposed to happen according to skeptics of theJeff Bezos’ huge investments in infrastructure. Some critics will still say that it was the lucky move into web services that has fueled Amazon’s recent success, and it is true that Amazon Web Services has become huge–Manjoo reports that AWS will soon be worth more than Intel.
But, the retail business is profitable, and Manjoo says it has passed the “inflection point” where the company’s investment in more than 100 warehouses, along with other “fulfillment” infrastructure, has begun to pay off. Sales growth now requires little additional investment. And, some are projecting a lot of growth. Manjoo writes that one analyst forecasts that by 2020 over 50% of U.S. households will subscribe to Prime, Amazon’s subscription and free-shipping program.
It is Prime that looks to drive Amazon to retail dominance in the U.S. and elsewhere (Alibaba in China dwarfs Amazon.) In retail, Prime harnesses the “power of free”, described by Dan Ariely in Predictably Irrational ($19.39 at this writing on Amazon. Eligible for Prime.) Both Dan Ariely and I benefited from the power of free as I described in this e-mail.
Whatever the reasons for its success, Amazon’s dominance causes concern, primarily among its competitors, but also on the part of local “bricks and mortar” retailers.
Our household is a Prime subscriber, and I purchase stuff from Amazon. I do like shopping at local businesses, and I am concerned about how Amazon’s ascendancy might harm them. But, is there a way that Amazon could help local businesses?
From time to time I will run into Dave Hite at McGuckin Hardware. Dave and Dee (McGuckin) Hite own the store. I’ve been shopping at McGuckin’s since it opened: Dee’s brother Ron was a schoolmate at Boulder High School. I even did a little bit of manual labor for the store way back when.
Dave and his family have been in hardware for a long time, and what says is his biggest concern is the decline of wholesale suppliers to independent hardware stores. The big operations have their own supply chains; as their lower prices lead independents to close, their suppliers also weaken or disappear, which in turn pushes more marginal retailers into failure. This is a positive-feedback condition, aka “progressive failure” or “death spiral”.
Now comes Amazon, with wholesale buying power and fulfillment that is unrivaled in the U.S. Amazon already provides a complete warehouse and fulfillment service to small internet sellers–carefully package and label your stuff, ship it to Amazon, and where it is stored until they ship it according to your instructions. Why can’t this model support local businesses. Say that Amazon expanded its business to include a comprehensive collection of hardware. A shopper at McGuckin Hardware who could not find what they want in the store would browse the Amazon stock with a store clerk and order what they want, using McGuckin’s “mega-Prime” account. Amazon and McGuckin each get a cut and the customer gets what they want delivered to their door. I dunno, maybe this is dumb, but it seems like an interesting possibility. I’ll raise Shunryu Suzuki on this.
The other thing that I wonder about Amazon is how the delivered transportation energy cost of an item compares to one picked up from a local store? I don’t know the answer to this, but I think there’s a good chance it would go in Amazon’s favor, particularly when you consider that the product is hauled home from the local store along with multiple tons of vehicle. This seems like an interesting question; perhaps it has already been answered.