Amazon’s Right on Target
In his effort to become the only merchant left in the world, Jeff Bezos is now planning to acquire Target. What a surprise. Bezos not so quietly has assembled pieces that enlarge Amazon’s sales and distribution system. Assembling is not the right word, though. More like the Anaconda indigenous to the namesake river – I say, River – Amazon is swallowing companies whole. If you think it’s an accident that in 1994 he named his startup after the world’s longest river, think again. Bezos has created the biggest stream of commerce ever created, and he is not done. It will make the Silk Road look like a two-lane blacktop.
Investors might have been surprised when Amazon picked off Whole Foods in June. Afterwards, the acquisition made sense. Whole Foods had assembled a blue-ribbon inventory of store locations; for which it was paying top rents and charging the top prices needed to pay said rent. Amazon is perhaps the only company whose supply deals, distribution and marketing could create the efficiencies and volumes to make good on Whole Foods’ costs.
Just the other day, some friends were sounding the death knell for Target. The Minnesota-based retail giant had effectively pulled down premium department stores on clothes and grocery chains with competitive food prices. But Target is in trouble now; has been for a couple of years. Target’s first big problem was that it outgrew its supply chain, hampering sales growth. The shelves, once expelling goods at customers like projectiles , were merely groaning and bursting at the seams.
After Target got back on its feet, it felt Amazon’s breath on its neck and Wal-Mart squeezing in from the side. Target began to falter. Its e-commerce division, rebounding from the 2013 credit card breach, was being dwarfed by Amazon. Wal-Mart, a head to head competitor, is viewed as a cheaper alternative to Target, even if that is not the case across all product categories. However, Wal-Mart pulled ahead decisively in its online business. In fact, Wal-Mart supposedly was clogging up Amazon’s rear view mirror.
Once the limping Target became separated from the herd, it was time for Amazon to pounce. In October Target was a rival; in November it was prey. Target will be Amazon’s brick-and-mortar general retail arm to go with the Whole Foods grocery appendage. Home Depot, anyone? You can almost feel the stock accelerating and pulling away from Wal-Mart till they are out of sight.
So. Another Johnny Rocco moment. More, Bezos? You want more? Will you ever have enough? No, I don’t suppose he will. However, this market consolidation doesn’t create jobs. At best it’s job-neutral. At worst, there will be redundancies in the management system. Prices? Consolidation doesn’t help prices; efficiencies should. But if Amazon pulls down Wal-Mart too, it will have no effective competition. Once there is no competition, there is no pressure on prices.
The net net of this deal is that jobs don’t increase on higher sales volume and the consumer dollar, shrinking through inflation predicted in several core sectors for 2018, won’t stretch as far with the new behemoth. In the current environment, only media companies are vulnerable to antitrust claims by the government. Amazon’s acquisition might not even pass muster as anti-competitive for purposes of the the antitrust law. It sure feels like Amazon will be the General Store on a hypothetical Main Street.