Saturday, April 25, 2020

Amazon’s Market Share is—Declining? Don’t sell the stock!

Amazon and the Future of Ecommerce

A few days ago, the following graphic was published on LinkedIn:

How is that possible, with everyone being at home and relying more than ever on online purchasing?
So, logically speaking, IF this is true, then either:
  • Total Online Spending increased dramatically, at ecommerce sites other than Amazon, OR
  • Total Online Spending did not increase dramatically, and people found viable alternatives to Amazon.
I tend to think that the first is more likely correct. Why? Because Amazon, pre-Covid-19, was the easy way to shop; people with limited time running to work or to social occasions, events, etc. found it convenient to shop using Amazon’s super effective platform. Now, with more time on their hands, AND with Amazon showing its growing pains, people started to look for alternatives and found them. 
What do I mean by Growing Pains? Everyone knows how quickly Amazon has grown. The numbers look like this: 

By the above graphic, Amazon’s revenue has grown 162% 2015-2019. IF we assume the 20% CAGR that Amazon has achieved, the 2020 revenue number is $336B, which would have effectively tripled revenue since 2015.
During that time, and pre-Covid-19, Amazon still managed to achieve a standard of one-day delivery for most items. Which brings me to question, did Amazon emphasize- no, push- speed over quality?
My recent experience may be a case in point. We ordered a Japanese Donabe (traditional clay cooking) pot from a seller at Amazon, which was fulfilled from the Amazon warehouse. The pot arrived with a crack inside, so was returned; the replacement arrived totally shattered, and its replacement was also cracked and returned. Third time was not a charm, in this case; the fourth time was. Why? Because we found a Japanese specialty store that shipped the pot well packed, and marked Fragile, which resulted in a perfect delivery. After that, guess what? We bought a second one, which also arrived in perfect condition. Above and beyond the money the freight and returns cost Amazon, they lost a customer permanently for this sort of merchandise. You cannot blame the courier, because they treat all merchandise the same, and any idiot knows that you better protect your goods from that.
So, for us, several hundred dollars of spending resulted in a negative net result for Amazon, and a big positive for the specialty seller. 
The question is, Does Amazon Know or Care? My answer would default to yes for both, if not only because Jeff Bezos, since the beginning in 1994, has been and is, the most customer-oriented business leader that I have ever seen.
That being said, it may take some time for them to make the changes that will reduce the frequency of eventualities like this. IF they don’t, then we can watch the decline. 
BUT, in the meanwhile, take a look at the following: 

and this:

(Once you have Alexa, they pretty much own you for most of your purchases)
And this:

And this:

Looking at the total forecast  of E-Retail: 

the total growth in million USD from 2019 to 2020 is $54,672. Yet earlier, we said that, if Amazon maintained its 20% CAGR from 2019-2020 it would grow by $56 billion. 
So what is the most likely truth? EITHER the forecast for ecommerce growth is way understated, OR Amazon will comprise the entire growth (even though it is somewhere between 33 and 50% of online spending), OR the forecast is correct and Amazon’s growth will slow dramatically.  (I recognize that the first number includes AWS, Amazon Media, etc. but that is not a major % of their business-yet)
What is my prediction- never afraid to give one of those and my track record is pretty good? And I am not taking the chicken way out here:
  1. As I have said in previous articles, I believe online shopping (not including omnichannel) will become the DEFAULT activity for most people worldwide;
  2. Therefore, the percentage of ecommerce to total retail sales will jump dramatically to 35-40% of total.
  3. Amazon will be the first port of entry for almost everything, but become a Generalist- like for Toilet Paper, Cereal, Basic Medicine, etc.; at the same time, we will see dramatic growth of specialists who can serve Everything Else.
  4. Brick and Mortar sales will shift from large Department Stores, to nimble Specialty retailers where there are not so many crowds and service can be found; longing for fulfillment and not anonymity, the Customer Experience will be paramount; those Specialty retailers will also be able to fulfill ecommerce needs. 
  5. Regarding the specifics of food retailing, staple items will default to stores like Amazon and Walmart; shopping trips to brick and mortar will be relegated to fresh food. Eventually, as fresh food delivery improves, and Amazon gives up the $35 threshold, that may also shift to ecommerce. This all presents an opportunity for specialty food retailers like meat stores, fish stores, produce markets, etc. A throwback to when I was growing up and that is all there was. Again, the customer experience is paramount.
So, Amazon will be fine, and should be happy that the scenario I have just laid out relieves them from being all things to all people. The growth of the main part of Amazon will slow percentage-wise, both because the base is getting bigger and bigger and because there will be alternatives. But still healthy, in double digits.
Amazon stock is $2410/share today; $3000 is within reach. How high it goes after that depends on how Amazon handles the next few years evolution and growth. My money is on Jeff Bezos, unless he has an epiphanic episode that reduces his adoration of the Customer.

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