Is the E-Commerce / Amazon Narrative the Next Hype “Supernova”?
Like many people, I find extreme swings in opinion fascinating. Perhaps the best example of this today is the narrative surrounding e-commerce, and more specifically, Amazon. Don’t get me wrong, these are a HUGE deal with big implications for retail. That being said, the popular narrative out there feels like it’s getting into “silly” territory. Like most crowded trades, there is a grain of truth (probably more than just a grain in this case) behind this narrative. However, as so often happens, the essence of truth snowballs into something so large, that it is destined to disappoint.
In any case, this topic has been something I’ve been pondering over the past few months. Here are some thoughts on why I think the “brick-and-mortar retail is dead” meme is overdone.
1.) The Value of Curation: In some ways, E-commerce and Amazon’s greatest advantage, is also its greatest weakness. You can find practically anything. But that’s also the problem, to find something, you have to sift through everything. Obviously this isn’t relevant if you know what you are looking for. But, if you only have a vague idea, shopping on the Internet can be daunting. Just try searching for “brown men’s shoes” on Amazon; good luck sorting through the 400 pages! When you don’t know exactly what you are looking for, the curation of a good brick-and-mortar retailer can be refreshing.
2.) The “………” Killer Narrative: Based on the articles I’ve been reading, Amazon is essentially going to kill all the competitors in every industry it enters. In fact, this view is becoming such “common wisdom” that the mere mention of Amazon sends stock prices in an industry tumbling (e.g., Whirlpool’s 7% decline because Amazon agreed to sell Kenmore appliances; grocer stock prices crashing after Amazon agreed to buy Whole Foods). Jeff Bezos is a super star, but it seems like a stretch to assume that any one person - or company - can dominate so many different industries.
3.) Benefit of the Doubt Gone Haywire: When it comes to Amazon, it sure feels like people are forgetting to check their work. For example, if you read the articles written on Amazon’s purchase of Whole Foods, they make it sound like Amazon has “figured out” the online grocery business, and buying Whole Foods was all part of the plan. However, if you read the background in the merger proxy filing, it becomes very clear that Whole Foods approached Amazon, not the other way around. Amazon may very well figure out the online grocery business, but it’s disingenuous to say this is a foregone conclusion.
4.) Low Prices Are All That Matters: While Amazon often (but not always) has the lowest prices, it’s funny that people assume that low prices are all that matters to shoppers. If price were the only thing people cared about, popular concepts like 7-Eleven wouldn’t exist. The needs of shoppers are wide-ranging, and these needs will likely be met through many different formats.
5.) Millennials Don’t Shop at Malls: Today, according to the press, “millennials” don’t shop at malls. But believe it or not, these same publications were saying the exact opposite a couple years back. Don’t believe me? Check this out: https://www.cnbc.com/2014/05/28/millennials-prefer-the-mall-to-online-shopping.html Or this: https://www.usatoday.com/story/money/business/2014/11/08/ozy-end-of-brick-mortar/18664797/. I’m not sure what the truth is here, but I’m willing to bet it’s not as black and white as many seem to believe. Maybe recent weakness in the retail sector has been driven more by a sluggish economy than dramatic shifts in consumer behavior. It’s certainly possible.
6.) Wall Street Getting On Board: Perhaps one of the greatest signs that this “anti-retail trade” may be on its last legs, is that Wall Street has started creating products to exploit Main Street’s enthusiasm. Thanks to creative bankers, investors can now “take advantage” of the carnage in the retail sector via leveraged short ETFs. Call me crazy, but I won’t be putting a dime into “ProShares UltraShort Bricks and Mortar Retail fund”. Thanks, but no thanks.