Amazon.com (AMZN Stock) Has no Major Rivals
There is something materializing in the retail sector that companies better be prepared for. It’s the growing dominance of online retailer Amazon.com, Inc. (NASDAQ:AMZN).
Under the direction of founder and CEO Jeff Bezos, the company continues to demonstrate why it is the pinnacle of the retail sector.
With a market valuation of over $400.0 billion, I would not be surprised to see Amazon eventually become a trillion-dollar company over the next five years.
Chart courtesy of StockCharts.com
As many of you know, the success of Amazon.com is the power of its online presence. Amazon sells nearly everything, and that is bad news for traditional brick-and-mortar retailers who have failed to adapt to the trend toward online shopping. It’s also good for Amazon stock investors.
In 2016, the company delivered in excess of two billion parcels to nearly every corner of the globe. The company’s sales platform is not restricted in any way to a physical border, which is what makes AMZN stock ideal for the widow portfolio.
Amazon has forced retailers to rethink how they do business. Gone are the days when retailers could simply set up a storefront and wait for shoppers to come.
These days, the shoppers are venturing out to the stores less and less, instead “window shopping” from the comfort of their home or workplace. Just envision a massive snow storm. Would you rather go out or shop via a click of your keyboard?
Behemoth retailer Wal-Mart Stores Inc (NYSE:WMT) has seen its business disrupted by Amazon.com over the past decade after failing to focus on the move to online shopping. Wal-Mart has recognized the problem and is focusing on developing its online presence. Yet, while it will help, I doubt it will be sufficient to challenge Amazon in the online space.
The reality is that Amazon offers many more products and much more variety via its network of retailers in around 130 countries.
Predatory Strategy by Amazon Is Working
The victims of Amazon’s presence is being felt.
Target Corporation (NYSE:TGT) just plummeted to a 52-week low after providing a weak fourth quarter and soft guidance. The problem is that its sales, just like those of Wal-Mart, are negatively impacted by intense competition, including those from online retailers such as AMZN stock.
Target doesn’t seem to be getting the picture, as the company announced it would be opening more stores, which is counterintuitive to what it should be doing, which is reducing the number of stores and focusing on developing its online presence.
The same is happening to Macy’s Inc (NYSE:M) and J C Penney Company Inc (NYSE:JCP), which are battling soft sales and weak same-store sales growth. But, instead of building up the physical network, Macy’s and J C Penney are reducing the number of stores. Macy’s has a decent online presence and will need to refine this.
Yet the online presence of Amazon doesn’t mean the company can be dominant in every retail space. For instance, the company has been testing grocery delivery services in some major cities but in a slight change of pace, it recently announced it would be opening up a small physical grocery store in Seattle.
The thinking is that the physical store would allow shoppers to buy groceries with sensors that tally up their purchases. Shoppers do not have to check out, but are sent a bill to their “Amazon Prime” account. It’s a great out-of-the-box idea that, if successful, could see the opening of many of these stores across the country.
Innovative ideas like this are what make Amazon.com a special company with tremendous price appreciation upside for strong long-term gains for Amazon stock.