Amazon has been on a rampage over the last decade as they have upended the retail industry which has resulted in many companies either going out of business or shutting down stores on a large scale. They have made shopping online easier and more affordable than ever before and as they continue to push the limits of what’s possible they will remain one of the most dominant companies in the industry.
A Brief History
In 1994, Jeff Bezos resigned from D.E Shaw & Co., a Wall Street firm where he held the position of Vice President. He decided to move to Seattle, Washington where he began to work on his business plan that would eventually turn out to be Amazon.
On July 5th, 1994, Jeff Bezos incorporated Cadabra, Inc before changing the name to Amazon. The reason for doing so was because one attorney confused the word “Cadabra” with “cadaver.” As a result, Amazon was born. The company started as a book store at Jeff Bezos garage before diversifying into DVDs, Blu-rays, CDs, video streaming, audio books downloads and even consumer electronics among others.
Fast forward more than two decades later, Amazon is not only regarded as the largest internet company by revenue but it’s the most valuable retailer in the US as well as the 8th largest employer.
Retail Industry Dominance
In advance of Amazon’s latest earnings report announcement, not only did Amazon’s stock price jump but Jeff Bezos topped the world’s billionaires list as the richest person. He has revolutionized the retail industry and the way people shop, which has been devastating to their competition as you can see in the graph below with how many retail stores have shut down this year alone.
As Amazon continuous its aggressive expansion into different markets, many companies have had to completely reinvent their business strategies in order to avoid being run over by the Amazon freight train. Even with careful planning, some companies can’t adapt fast enough and are either being put out of business or being forced to downsize on a large scale.
Below we’ll have a look at some of Amazon’s latest victims.
Renowned as a mall chain department store, Macy’s is one of the largest apparel retailer in the US. What analysts have found out is that the rise of Amazon will surely affect Macy’s. How? Amazon offers lower priced apparels plus purchases are shipped right to the shopper’s doorstep.
Even though online stores do not offer customers a chance of trying out the apparel before they shop like Macy’s does, lower pricing of apparels by Amazon has contributed to Macy’s problems. Furthermore, department stores like Macy’s, Kohl’s and Nordstrom stock the same merchandise and their in-store experience is not that great. This has resulted in heavy discounting which is digging into their earnings and causing revenues to slip in a big way.
An in-depth look into Macy’s revealed that the retailer has been shutting down stores and laying off employees in hopes of retaining its profitability levels.
Best Buy is renowned as the largest consumer electronics retailer thanks to its diversity in terms of brands and models plus lower prices. Guess who is second? Yes, you guessed it right, Amazon. The company has been gunning for the first spot in the consumer electronics division. In 2016, analysts revealed that Amazon had finally surpassed Wal-Mart when it came to consumer electronics retail business. This was attributed to lower pricing by Amazon as well as the provision of better brands and models.
Over the years, Best Buy has been experiencing slow consumer electronics retail sales but the good news is that it still has a chance especially if it were to revamp its online store and what it offers to consumers.
Victoria’s Secret has been one of the go-to intimate apparel retailers for most women and even men shopping for something nice or naughty for their girlfriends and wives especially during special occasions like Valentine’s Day. Over the years, Victoria’s Secret has been experiencing a slump in its retail business. This has been attributed to high prices set on most merchandise in the store. For example, women who shop for bras at the store end up parting with $10 or more.
To capitalize on this, Amazon has continued to offer stylish intimate apparel for women at affordable prices. Furthermore, shopping online eliminates the chances of encountering unflattering fitting room lights and awkward interactions with sales representatives at Victoria’s secrets. That is not all. Plus size models are finding it much easier to find intimate apparel that fits well at Amazon and not at Victoria’s Secret.
The Texas based retailer has more than 1,000 stores around the US but in 2014, it started by closing 33 stores followed by the closure of 40 stores in 2015 and 7 stores in 2016. The reason for this closure was that stores were under-performing. In reality, JC Penney was and is facing stiff competition from Amazon. This has resulted in measures to reduce expenses across the US. Other measures being implemented include cutting payroll and eliminating overtime hours.
Sears Holdings currently owns the following subsidiaries – Sears and Kmart. In 2016, the company announced that it will be closing 10 Sears’s stores and 68 Kmart stores around the country. Reason being to lower expenses. As a result of the news, its shares rose by 5.6%. Today, Sears no longer enjoys the kind of productivity it did a decade ago. All this is attributed to Amazon’s rise and rapid expansion.
Sports Authority recently filed bankruptcy due to declining sales and the inability to find a buyer. This was even after they closed 140 stores of their 450 and can be directly attributed to Amazon’s ability to offer better prices and convenience through online shopping that Sports Authority just couldn’t compete with.
Amazon Steps Into the Grocery Market With its Acquisition of WholeFoods
Amazon has been making a dent in the retail sector, but with its latest acquisition of WholeFoods ($WFM), they are looking to make a presence in the grocery market and as you can tell in the charts below, WholeFood’s competition did not like the move. Sprouts, SuperValu and Kroger all took huge hits on their share prices when news hit the wire of the acquisition and then took another hit once Amazon slashed prices.
There is also speculation that Amazon is using WholeFood’s to help push them into the “meal-kit delivery” market which is putting them in direct competition with companies like Blue Apron, Green Chef and Hello Fresh.
I’d expect these grocery stores to remain under pressure as Amazon builds on WholeFood’s brand and works on capturing more market share.
Let’s face it. Competition will always exist in the business world. The good news is that existing businesses have a chance of operating within their sector despite pressure from upcoming businesses. So, how can businesses stay relevant? By transforming into a customer centric business, diversifying the product range and pricing products affordably.
However, this is Amazon we are talking about. They have been incredibly aggressive and successful in their growth initiatives over the past several years which is putting many retailers on their heels as they scramble to keep pace and stay in business.