Amazon: a looming problem for other retailers

Amazon: a looming problem for other retailers
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Those who thought Amazon’s growth would slow down, were wrong: the company is now worth more than 500 billion dollars. The Amazon effect is even troubling other retailers and investors. How should they react?

300,000 employees

The company is currently looking for an additional 50,000 employees and will organize job fairs all across the United States on 2 August in an attempt to fill most positions. However, it is not entirely about 50,000 employees, because the company wants to add 130,000 people by the summer of 2018. That would bring its staff numbers up to 300,000, ten times higher than it was in 2011.

 

The company’s value also continues to soar, having already added 40 % and nearly 150 billion dollars (128 billion euro) since the start of the year. It recently surpassed the 500 billion dollar (425 billion euro) valuation, more than double the value of its major competitor Walmart at 235 billion dollars (200 billion euro). A company like AB InBev is worth 195 billion euro.

 

Investor panic

That enormous size also scares other companies, because as soon as Amazon appears in a particular field, the competition’s shares instantly drop. Capital management firm Bespoke Investment Group even drafted a “Death by Amazon” index, consisting of companies that will be hit the hardest by Amazon’s continued surge.

 

When Amazon announced the Whole Foods acquisition in June, the index got hit by a 32 billion dollar (27.3 billion euro) drop. There are plenty of other examples: Prime Wardrobe proved detrimental to fashion company Nordstrom’s shares, its Sears collaboration was a painful blow to Home Depot’s shares and Ahold Delhaize’s shares plummeted nearly 10 % after the Whole Foods purchase. It shows how fearful investors are when Amazon comes to the table.

 

“The funny thing is that the companies do not do anything differently”, Actiam analyst, Corné van Zeijl said. “The fear of getting hit by Amazon flips everything around. Investors are easily caught up in the hype.” The shares often recover shortly after and that typical behaviour is interesting territory for smart investors.

 

Amazon’s main advantage compared to other companies, which is also why investors fear it so much, is that it has low margins. This helps it to become relevant in every industry, but it is also a wake-up call for other companies, which then change their approach and become competitive. Those that react positively to Amazon’s assault, are usually rewarded on the stock exchange. Shars for companies like Sears and Nike, which collaborated with Amazon, have also gone up.

 

Fight with Birkenstock

Nevertheless, there are companies not willing to step aside for Amazon. German shoe brand Birkenstock decided last year to halt any sales on the web shop, pointing to the many counterfeit items on Amazon and the company’s limited efforts to curtail it. It was quite a bold move, seeing how Amazon had been one of Birkenstock’s best-selling channels for several years. It was definitely not the only one to suffer from an influx in counterfeit items, mainly because of an influx of Chinese sellers, but it is only one of a few brands willing to take a stance against the mighty Amazon.

 

A year later, the relationship between both companies does not seem to have mended. Apparently, Amazon contacted several Birkenstock resellers in an attempt to get the famous sandals back on its platform, something Birkenstock CEO David Kahan clearly does not appreciate.

 

He sent a memo to its sales partners, making it clear in no uncertain terms how he feels about Amazon and sellers who would want to work with the giant. “I will state clearly, any authorized retailer who may do this for even a single pair will be closed FOREVER. I repeat, FOREVER”, he said.

 

He also writes that he has never “ever heard of a retailer on such a scale as Amazon, actively soliciting other retailers for a brand's inventory in the case of such brand not choosing to sell them”. “Quite frankly I see this action by Amazon as pathetic. Amazon can't get Birkenstock by legitimate means so why not dangle a carrot in front of retailers who can make a quick buck.”

 

Kahan’s letter to his retailer shows that not everyone is that happy with Amazon’s growth and that even retailers that do work with the giant do not always do so with full conviction. Amazon is often considered to be a necessary evil.

 

More than half of American consumer start their search for a new item on Amazon. Some brands cannot imagine not being present on Amazon’s platform, but Kahan clearly disagrees. He even illustrates it as “modern-day piracy” and a “middle finger to all brands, not just Birkenstock”. It seems highly unlikely Birkenstock will reconsider and return on Amazon anytime soon.

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