|“You wanna open a store and sell stuff??? HA!! Sure, you could sign a long-term lease for space. Or you could just set your money on fire. Either way, your money will be gone. But at least you won’t waste a few years yelling at your kids and kicking your dog as the unrelenting stress keeps building and building…”
A couple years ago, it became a WALL STREET FACT that Amazon would inevitably vanquish all its challengers and take its rightful throne atop the retail world like a benevolent emperor, showering the people with unparalleled convenience wrapped in incredible savings.
But a funny thing happened on the way to the coronation…
The Walmarts and Targets of the world may have found their footing. I mean, did you see the retail earnings reports this week? Holy moly, there were some amazingly good reports…
Kohl’s and Target led the pack (sorry, Walmart). Target may not be a huge surprise. The company has been executing very well for over a year now. Still, the latest report was really good. Holiday sales were up nearly 6% for the quarter, while overall retail sales growth wasn’t so hot.
Most impressive was Target’s online revenue, which absolutely crushed it with a 31% gain year over year. Target is up about 50% since shoppers hit the stores on Black Friday 2017. And that fourth quarter earnings report was its best in a decade (the last time Target posted 5% comps was 2005).
But here’s something that might surprise you: Target’s online sales have grown 25% a year for the last five years. Yeah. Where was that stat two years ago when it was all Amazon, all the time?
I’m sure you know the Legend of Amazon pretty well. Every item you could ever want or need could be quickly purchased from Amazon and delivered by drone, catapult, or sled dog in a matter of minutes. (Please do not order food to be delivered by sled dog; and catapult delivery is for clothing only.)
Amazon went into groceries. Amazon is selling pharmaceutical drugs. Amazon will fix health care. Amazon negotiates lasting peace in the Middle East and plays pinochle with Kim Jong Un.
But here’s the thing people don’t pay enough attention to: investment.
Anytime there seems to be a huge cultural shift going on in the stock market and economy, ask yourself where’s the stupid money and where’s the smart money. Because it is inevitable that overinvestment in one area leads to opportunity in another. And so what may look like a “brand-new cultural trend” is actually just money being invested in a new opportunity.
We see this time and time again. Chipotle ran, like, 1,400% as it pioneered the fast-casual revolution. At the same time, McDonald’s and other fast food hit really hard times. It looked like fast casual was taking over. But really, it was poorly invested money by fast food that created the opportunity for Chipotle. If McDonald’s had really been paying attention, it would’ve responded to consumer demands faster, and Chipotle might not have done so well.
It’s not a coincidence that the fast-casual thing ended quickly — Chipotle is nowhere near all-time highs, while McDonald’s is. It’s the boom-bust cycle dynamic played out on a smaller scale.
There’s a statistic I like to throw out there about retail. In 2017, the U.S. had 23.5 square feet of retail space per person. The next most was Canada at 16.4 square feet and Australia with 11.4. The U.S. had six times as much brick-and-mortar space as Europe or Japan.
Those are insane numbers. Completely unsustainable. No wonder so many retailers went bankrupt in the last couple years. No wonder malls are closing down…
The simple fact is: American retailers overinvested and created an amazing opportunity for Amazon.
If You Can’t Beat ’Em…
Amazon commands like 40% of e-commerce revenue. Still, total e-commerce is still less than 10% of total retail sales. So, yes, Amazon has done amazingly well. But can we agree that the rumors of retail’s demise are maybe a bit premature?
I mentioned Kohl’s earlier, and this is a great little tidbit. A couple years ago, Kohl’s partnered with Amazon so that Amazon customers could return items at a Kohl’s. I’m sure a lot of people thought this was a perfect example of Amazo-minance (that is an amazing new word).
How could Kohl’s sink so low? The truth is that this has become an actual partnership.
We can debate how much of Amazon’s success is a product of luck or skill. But I can tell you, as a grumpy old consumer, I like to touch the things I’m going to buy. OK, maybe that sounds weird. Hopefully you know what I mean…
There will always be actual stores. And now that Amazon is basically an anchor and retail space is cheap, Amazon is opening stores. And it’s also doing pop-up stores in other people’s spaces… like Kohl’s. Google “Amazon Kohl’s pop-up,” and you might find this:
That Amazon/Kohl’s partnership is starting to look a lot less lopsided. Amazon has helped make the retail herd lean and mean. And now the profits are starting to roll in.
And there are a few other under-the-radar companies that are dedicated to helping Amazon (and other retailers) grow. One of these companies is basically Amazon’s logistics company. And it’s delivering checks to investors like you…
The next round gets sent out on March 15th.