Why Amazon.com scares, and fascinates me – Part 2

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Last week I looked at why you need to consider Amazon.com when making investment decisions (see Part 1 here). I said that I had put all investment decisions on hold until I could grasp the effect of the story of a company called Dollar Shave Club, which has disrupted the razor blade market.

Here are a few more areas of concern, where I would not allocate capital without a great detail of research:

Food retail:

Amazon.com now has a grocery delivery service in London called Amazon Fresh. While still small, Amazon.com never seems to stay small, so what effect will this have on retailers in the UK like Tesco and Sainsbury’s? They are already in a deadly battle with discount retailers Aldi and Lidl. Sorry, but this Dividend tycoon will not be investing in mainstream UK retail stocks anytime soon.

I would probably extend this retailer investment ban on myself to retailers in the USA such as Wal-Mart, but I think many of these will be okay as long as they continue to develop their own online presence. Having said that my due diligence before investing in a company like Wal-Mart is higher than it used to be.

I have however invested in a small retailer in Africa, called Choppies. Very small, but a similar modus operandi to a 1970’s Wal-Mart, growing in small towns in countries like Botswana, Zimbabwe and Kenya. I am more confident that they will not be affected by Amazon.com for quite some time.

Property/Malls:

I read an article recently about America’s dying shopping malls. The article was specifically about some malls owned by General Growth Properties Inc. They had missed a payment on a mall in Detroit.

Now I am sure many malls will be fine, but older malls in poor locations are being hard hit by the rise in online shopping.

This is an area where I am still wanting to invest. I wrote a post on a stock which owns 9 prime malls in the UK, which I felt was showing value as a result of Brexit depressing the stock price. However, the amount of due diligence required before allocating capital to stocks which own shopping malls is certainly higher than ever.

Niche retailers:

Outside of food retailing, I believe the everyday products we buy from niche retailers, such as clothes, computers, kitchen products, and staples are in danger of being sold in ever greater quantities through Amazon.com rather than through traditional niche retailers.

Did you just read that I said ‘staples’? This idea came to me a few weeks ago when I was reading a 2013 issue of Fortune magazine. The title of the article was ‘Stocking up on Staples shares’. The article was positive on the prospects for Staples (a large retailer of office products), and in fact of the four main points they made, number two was that ‘Amazon won’t crush Staples’. The reason being that 80% of customers are business customers, not retail customers. At the time, the price was around $14, and an analyst thought that in a year or two it should be trading in the high teens.

I thought it would be interesting to see where the stock was now. Lo and behold it is around $8, so has decline massively. Some investigation shows that they have been trying to merge (unsuccessfully as it turns out) with Office Depot as they feel they cannot survive the onslaught from Amazon.com. Things change quickly.

The point being, that products like office supplies, are so easy for Amazon to slot into their system. Needless to say, the only staples I will be investing in are for my stapler!

Conclusion:

These are just a few examples of how Amazon.com is going to have an effect on the business landscape in years to come. Last week I spoke of the two books I have read, especially the everything store by Brad Stone, which I recommend you read in order to get a feel for Amazon.com. Reading this book you realize that Amazon.com is not the phenomenon it is because of the rise of the internet and online shopping. These things were bound to happen anyway. If Amazon.com was not around, others would be. However, the phenomenon that made Amazon.com the leader of the pack by far, is Jeff Bezos.

In my next post I will explore the reasons why Jeff Bezos has made Amazon.com into what it is today. I will also look at what a CEO like Jeff Bezos means in the world of investing, and why finding people like him, particularly if you can identify them early, can lead to life changing investments.

Full disclosure: I have not placed adverts on this site at all yet. If I do in future they will be for products I trust and believe in. However, in an act of irony I must disclose that the book I have recommended above is my first step into the e-commerce world and I am, yes, an Amazon associate now! If you cant beat them, join them! Anyway, the book really is a very good and informative read, and should you order it through this site, it would be greatly appreciated!