Local Retail Nightmare – the Amazon monster under the bed is real. 

Local Retail Nightmare – the Amazon monster under the bed is real. 

Summary:

  • Amazon is at war. It has begun its attack on national, regional and local retailers
  • Amazon’s just launched 60 over-the-counter health products
  • The first casualties will local businesses.
  • As local businesses fail local media becomes collateral damage
  • Finally, local communities become ghost towns

Children throughout history have woke up screaming with fears of monsters.  Monsters in the closet and those terrifying monsters just under the bed.

Local retailers and even the retail giants like CVS, Rite Aid and Walmart are waking up to the fact that the Amazon monster is real. Unlike a nightmare, this monster kills for real by devouring margins.

In what seems like nothing less than bystander apathy, local newspapers, local radio, and local TV stations aren’t up in arms.  What they don’t know is that retail’s nightmare is already infecting their monetary blood streams.  They will be the collateral damage as their local advertisers’ margins shrink and advertising dollars dry up.

What makes Amazon such a lethal monster is its mastery of logistics and multiple streams of revenue.  It’s 2017 earnings were a whopping $178 billion.  In 2016 it earned $15 billion from its web services which accounted for 89% of its operating income.   Amazon earned an additional $2.8 billion from its 2017 advertising services. Its advertising revenues are expected to pop to $4.5 billion in 2018.  The monster has many heads and all the heads are growing.

The Amazon War Strategy.  Amazon uses the revenues from its different revenue streams to wage war in retail.  For Amazon it all makes sense.  When it wins in retail then manufacturers are forced to advertise and use Amazon web services.  It is an ever-expanding monopolistic web.  Amazon Ad Revenues

Tough for a retail chain or a local business to compete against a giant that DOES NOT NEED to make profit from its retail business.

Amazon is a real threat to national, regional, and local businesses.  Health products are just the beginning.  Amazon launched its Whole Foods delivery service.  They will deliver groceries, pizza, prepared meals, and home cooked meals.  Shoppers will live in an Amazon world, use their Amazon credit cards and talk to Alexa to do it all.  FYI – that charming AI driven Alexa people have in their homes is tracking everything they do and when they ask Alexa a question her first algorithm imperative is – Amazon products first.  Alexa is not Lady Liberty.

The Amazon monster eats companies, jobs, and local communities.  The local businesses, which already operates on razor thin margins soon, won’t be there.

The Slaughter is taking place in slow motion. A first glance Walmart with its $418B worldwide 2017 revenues and 5,000 Walmart stores might lead one to assume it is well positioned for the war.  Dig a little deeper and we find Walmart’s growth rate was a miserly .63% while Amazon posted a whooping increase in 25.2% sales growth in 2016 and 44.6% in 2017.  Amazon with its 63 million Prime members offers a 5% discount for shopping in its 470 Whole Foods Stores.  Think about it.  Amazon’s Whole Food stores require ZERO advertising expenditure while Walmart spends nearly $3B per year on advertising each year.

This isn’t a battle it is a slaughter in slow motion.

Alien Infection. Amazon uses a parasite strategy…inflect host companies like Acme, CVS, Rite Aid and eat their margins a small percentage at time.

 Angelica La Vito CNBC 2/20/18 article detailed what Amazon is preparing to do the retail giants.  Angelica LaVito // 20 Feb 2018 // CNBC. Amazon wages war on retailers

  • Amazon sells branded over-the-counter medications such as Advil, Mucinex and Nicorette as well as options from Perrigo’s generic GoodSense brand.
  • Basic Care, Amazon’s recently launched exclusive line of Perrigo OTC health products, is a direct challenge to pharmacy retail chains.
  • CVS Health, Walgreens Boots Alliance and Rite Aid are losing in-store traffic as people shop for OTC products online. Where they shop is Amazon.

In LaVito’s article the most telling revelation is that people are increasingly shopping for OTC products online.  Fortune Magazine reported, For the first time ever, shoppers are going to the web for most of their purchases. An annual survey by analytics firm comScore (scor, -0.92%) and UPS (ups, +1.11%) found that consumers are now buying more things online than in stores.

The survey, now in its fifth year, polled more than 5,000 consumers who make at least two online purchases in a three-month period. According to results, shoppers now make 51% of their purchases online, compared to 48% in 2015 and 47% in 2014.” The shift to online shopping

Amazon is where 55%+ of online shoppers begin. LaVito goes on, “Pharmacies make money when people walk in looking to grab medicine and end up buying cosmetics and other goods. They’re already losing traffic as people shop for those products online, including on Amazon. Giving them another possible reason to skip the store could hurt even more.

Matthew Oster, head of consumer health research at global market research firm Euromonitor, knows what’s coming, “It’s a very different world, and having Amazon jump in is not a good sign for existing brands, either branded or private label, because the way Amazon works is its ability to take on unprofitable ventures for a time to see how things go.  And the fact they have a near monopoly in e-commerce gives them a lot of scale that can allow them to undercut price. So that aspect should be concerning for whoever their competitors are in that space.”

CVS, Rite Aid, Acme, Kroger, Safeway, Publix, and other large national and regional chains will fight back.  But like France against the German blitzkrieg, don’t expect the outcome to be positive.  The most immediate casualties will be local pharmacies, grocery stores, butcher shops, and other local businesses don’t stand a chance.  As these local business fall, local media collapses.

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