Wednesday, February 08, 2012

Does Amazon Need to Open Stores?

Or what they're call "distribution centers". Or should they buy a shipping company?

Kas Thomas considers The Trouble with Amazon
Amazon's business model is a model of confusion. Their business is really three businesses: eRetailing (what Amazon calls EGM: Electronics and General Merchandise), publishing, and cloud services. 
According to Amazon's 10K filing, EGM currently accounts for 60% of the business. And that's precisely where the big trouble lies. 
Recent indications are that Amazon has reached a tipping point. For 2011, Amazon's net income was a paltry $631 million on net sales of $48 billion. Compare this to 2010's net income of $1.152 billion on $34.2 billion in net sales. Basic earnings-per-share has gone from $2.58 (2010) to $1.39 (2011). 
Basically, Amazon has become a logistics company without wheels. To survive in its present form, it badly needs to acquire an Airborne Express (except that AE has already been acquired by DHL), or maybe a railroad and a package delivery company. Ideally, it also needs to acquire a payment-processing system (a PayPal). Why not just admit the obvious? Amazon needs to acquire eBay. 
The alternative is to join the long list of department stores that tried to be all things to all customers (and ended up broke). 
Amazon claims it will enjoy greater efficiencies (going forward) by opening more fulfillment centers and putting pressure on suppliers. But their story, frankly, is starting to sound old and is (how shall we say?) at this point painfully unconvincing. Inefficiencies are rising faster than efficiencies, at Amazon. That's what the numbers show. And that's the real point.
- Posted using BlogPress from my iPad

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