There’s a scene in “Demolition Man” where Sandra Bullock is driving Sylvester Stallone to a fancy dinner at Taco Bell. When he scoffs at the venue, she explains the restaurant is the only one that survived the “franchise wars” while he was cryogenically frozen for more than three decades.
“Now all restaurants are Taco Bell,” Bullock says.
To which a stunned Sly can only reply: “No way.”
Fast forward to 2017, and the notion of a stranglehold on an entire consumer segment doesn’t seem like science fiction at all. In fact, after Amazon.com Inc. AMZN, +2.44% announced it would purchase Whole Foods Market Inc. WFM, +29.10% for $13.7 billion, the only thing unrealistic about this notion is that anyone other than Amazon will be victorious.
The addition of the fresh foods powerhouse fills one of the few remaining holes in Amazon’s line of consumer offerings.
And whether you’re a conspiracy nut worried about some dystopian future where one company dominates the American consumer landscape or whether you’re just an eager investor looking for a discretionary stock with a wide moat, you’ll want to watch Amazon very closely.
Amazon is rapidly becoming a consumer monopoly. And it appears there’s nothing anyone can do about it.
Google and Facebook have nothing on Amazon
Over the years, Google parent Alphabet Inc. GOOGL, -0.16% GOOG, -0.27% has gotten plenty of flak for its dominance in internet search. In fact, just days ago, the European Union threatened fines of as much as $90 billion for allegedly favoring its own business arms in search over the competition.
Facebook Inc. FB, +0.56% has also been in the crosshairs, as some fear it is invading our privacy and controlling information like Big Brother in George Orwell’s “1984.” Nearly half of all Americans get their news from the social media giant, and its user base of roughly 2 billion users makes it the largest “community” on the planet — bigger than either China or India in population.
But somehow, those who fear tech companies will break society haven’t really worried much about Amazon as it quietly subsumes every element of the American consumer experience … and destroys dozens of businesses in the process.
Amazon got off the ground about 20 years ago with a fairly simple goal of becoming the world’s largest bookstore, powered by the internet. But it quickly It branched into movies and CDs, then consumer electronics, then digital content and just about everything else.
It sent brick-and-mortar bookstore chain Borders into bankruptcy six years ago and crippled countless other smaller booksellers. Electronics retailers like RadioShack have also fallen away. And we all know it’s only a matter of time before department stores like Sears Holdings Corp SHLD, -2.77% are next.
Sure, you can’t blame Amazon alone for these business failures. Eddie Lampert’s vampire-like management will be as much a part of Sears’ obituary as e-commerce. And yes, the creative destruction of e-commerce and the internet — “disruption,” as Silicon Valley likes to call it — is a natural part of a vibrant economy.
But remarkably, there’s little antitrust outrage directed at Amazon despite the carnage left in its wake and its dominance of the American consumer landscape. Yes, there was a noteworthy Amazon dig made by President Donald Trump right around Election Day, but many politicos wrote that off simply as more ire over the media, as Jeff Bezos owns the Washington Post as well as Amazon, and the paper has hardly been friendly to Trump.
It makes me queasy to write this, but perhaps Trump is right.
Amazon wins, everyone else loses
And why not? Because when Amazon enters part of the market, it kills that market altogether.
After all, Amazon accounts for 43% of U.S. online retail sales, according to some reports, and that share grows by the day as it captures more than half of all growth in online sales. How long until competitors give up altogether?
After killing Borders and others, it now sells more than a third of all printed books in the U.S. and four out of five e-books.
It is the biggest clothing retailer in America, and the carnage is obvious as traditional retailers like Macy’s Inc. M, +0.88% and J.C. Penney Co. Inc. JCP, +3.72% continue to struggle. Estimates are for almost 9,000 store closures in 2017 across brick-and-mortar retail.
Now, with the addition of Whole Foods to beef up its already ambitious AmazonFresh grocery efforts, it’s only a matter of time before Amazon owns this category, too.
Don’t think it stops there. As I pointed out after first-quarter earnings, homegoods and furniture merchants like Wayfair Inc. W, +2.78% are among the few consumer names that have thus far not gone toe-to-toe with Amazon. But at even the whisper of competition from Amazon, shareholders got the jitters. You can be sure Bezos & Co. are coming for your coffee tables next.
In full disclosure, I am an Amazon Prime member and enjoy streaming “ThunderCats” with my kids, and I love getting competitively priced electronics delivered right to my doorstep. Perhaps that’s why I have never given the dominance of Amazon a sideways glance. After all, my household is benefiting nicely by saving time and money.
But that may not be the experience of all Americans. There are plenty of stories about the backbreaking work at Amazon’s cavernous fulfillment centers, and according to data compiled by Glassdoor, these folks make just $13 an hour on average.
Amazon is hiring, yes, but it’s often part-time work — and thanks to algorithms and automation, it’s difficult to believe the jobs created will offset the hundreds of thousands of traditional retail jobs that are disappearing as brick-and-mortar stores crumble.
It’s a sobering thought.
I must admit that my initial reaction as both a Whole Foods and Prime customer was pleasure and anticipation. But that’s partially a response I’ve been taught through shrewd marketing and corporate positioning. Amazon has always shrouded itself in noble goals, taking on the Big Guys to bring us better service and better prices.
But the more I think about Amazon’s purchase, the more it’s apparent that Amazon itself is the Big Guy. I mean, if you were cryogenically frozen for 30 years like Stallone and woke up to find the only retailer left in America was Amazon … would you even be surprised?
I’ll let the sci-fi nuts and antitrust lawyers figure out whether that’s a good thing. But as an investor, it makes me even more eager to have Amazon in my portfolio.