What’s up with retail stores?
A list of the top-20 retailers in the US yields the usual suspects: Walgreen, Kroger, Target, and of course the 800-pound gorilla, Wal-Mart. In 2011 we spent over 1.1 trillion dollars on retail purchases from these stores—almost 8% of the economy, and a 5% increase from a year earlier.
But there’s a new kid in town.
Amazon was ranked 15th and had $26 billion in sales last year—a miniscule amount compared with the total, or with Wal-Mart, which sold over $300 billion worth of merchandise. But their sales were up over 40% from a year earlier. It’s incredibly convenient to buy from them. They’re also a conduit for many small retailers who specialize in specialty items like antique glassware or Italian racing bicycles. They’re also expanding into mainline items, like clothes and groceries. Amazon isn’t just books any more.
And they may be working on a new development that will make them even more formidable: same-day delivery. This week the Financial Times reported that Amazon is expanding its nationwide network of warehouses as part of a plan to enable same-day delivery of products to more customers. If you can just click on an item and a few hours later a delivery person rings your doorbell, there’s even less of a reason to go out and stand in line.
To be sure, the company is keeping mum about the rumors. But there’s more than a little irony about the development. For years local retail associations have pressed State governments to collect sales taxes from the internet behemoth, because the tax-advantage gave them a pricing edge. After all, the reasoning went, if Amazon has a fulfillment center in the State, they should collect sales taxes like any other retailer.
After initially resisting, the company seems to have said, “In for a dime, in for a dollar.” They’re pouring resources into huge, computerized warehouse facilities just outside major markets to build a real “physical presence.” So now a major retailer that doesn’t seem to care about making a profit is poised to grab even more market-share from traditional stores.
So be careful what you wish for. Now that Amazon is paying taxes, they could be the retailer next door.
Douglas R. Tengdin, CFA
Chief Investment Officer
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