In this file:
∑ Amazon Has a Fulfillment Cost Issue It Needs to Resolve
∑ Amazonís grocery plans should both strike fear and motivate
∑ Whole Foods denies cutting employee hours
∑ The Amazon Problem
Amazon Has a Fulfillment Cost Issue It Needs to Resolve
Amazon's cost for its fulfillment empire, including its network of warehouses and retail outlets, is growing faster than sales. How will it make that pay off?
Tiernan Ray, TheStreet
Mar 11, 2019
After 24 years in business, Amazon (AMZN - Get Report) is an amazing growth story for a mature company, with sales up 31% to $232.9 billion in 2018, defying the "law of large numbers."
The only growth more awesome than that is the company's cost to fulfill sales, which rose by 35% last year, to $34 billion, and which rose to a larger overall proportion of the company's operating expenses, equivalent to 14.6% of total sales, up from 14.2% in 2017, according to the company's 10-K filing.
In fact, the gap in growth between sales and fulfillment is likely to widen in coming years, which may mean Amazon either finds a way to generate much more sales from that fulfillment empire, or it finds a way to streamline the empire, perhaps by at some point divesting the actual physical assets in favor of an asset-lite model whereby its Amazon Web Services acts as a facilitator of the logistics of moving goods.
Fulfillment includes the numerous Amazon warehouses around the world, and its increasing network of physical stores, as well as Amazon's cost to process transactions. It's both an asset in Amazon's ability to get goods to customers as soon as the same day, and it's also a business Amazon sells to vendors who want the company to handle their own warehousing and shipping needs, branded "Fulfillment by Amazon," or FBA.
It's the backbone, in other words, of how Amazon makes the movement of physical goods different from how it's ever been in retail.
Last year was one that Brian T. Olsavsky, the company's chief financial officer, in January described as "banking" the investments of prior years, meaning less investment and more profit from previous spending. The company's fulfillment cost growth, while high, was down from the 43% by which it rose in 2017, while its square footage leased for fulfillment centers grew by only 15%, versus growth of more than 30% in 2017 and 2016.
"So in a lot of ways, 2018 was about banking the efficiencies of investments in people, warehouses, infrastructure that we had put in place in 2016 and '17," said Olsavsky on the company's Q4 earnings call.
But this year looks to be another period of rapid investment, according to Olsavsky, who said that while "we certainly do take costs seriously," nevertheless, "I would expect these investments to increase relative to 2018."
The average estimate, per FactSet, of Amazon's sales growth this year is 18%, a big drop from last year's 31%. But Canaccord Genuity analyst Michael Graham estimates Amazon's fulfillment spending may rise by 23%.
Graham writes in a note following earnings that the step-up in expense is "structural," as "Amazon-fulfilled demand" is "growing much faster than the company average."
That trend is reinforced by a story out last Thursday by Bloomberg stating that Amazon has "abruptly stopped buying from many of its wholesalers," citing remarks of retail industry observers. The move, Bloomberg writes, is designed to...
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Amazonís grocery plans should both strike fear and motivate
Reports that Amazon plans to open a new chain of grocery stores separate from Whole Foods is especially threatening to consumer goods manufacturers that would increasingly be competing with Amazon's private-label brands. CPGs must build more relevant brand equity to survive.
Jon Reily, Opinion, Digital Commerce 360
Mar 11, 2019
The Wall Street Journal reported last week that Amazon, which in 2017 acquired Whole Foods, is aiming to broaden its reach in the grocery industry by opening its own grocery stores. These stores would be separate from the Whole Foods brand, have a wider range of products and potentially offer lower prices than Whole Foods currently does, which would help create distinction between the two chains.
While there are a lot more questions than answers at this point, it appears that this move is less about Amazonís ambition to grow its grocery market share and more about embedding the brand in our daily lives and collecting more of our data. The new chain will be an effective vehicle for Amazon to move its high-margin private-label goods, which the company has been quietly building up behind the scenes.
It also offers up a new source of customer data for the company. By making this chain a more affordable alternative than Whole Foods, Amazon gains access to new, untapped groups of consumersóthe types that typically donít shop at Whole Foods or have an Amazon Prime membership.
A Potential for an Acquisition
Sources say that Amazon is considering the option of purchasing regional grocery chainsto accelerate the new grocery brandís launch and market reach. The fact that the Wall Street Journal report said there would be stores by the end of the year aligns with the idea that Amazon is leaning towards an acquisition over building new physical stores, though that doesnít mean they wonít expand on their own later. Regardless, thereís no doubt Amazon has properties and targets in mind already. At the end of the day, Amazon is all about speed, and buying an existing chain would allow them to go-to-market much quicker.
In fact, thereís a good chance that this move is partly a test to see if Amazon can install their technology in existing stores as much as it is an overt move further into the grocery space or a play to acquire more Amazon Prime customers. The beta tests of AmazonGo technology appear to be successful and the platform is gaining maturity as they open more stores, so this could be the perfect testing ground.
The Biggest Losers: CPGs, Not Grocery Stores ...
Whole Foods denies cutting employee hours
By Krishna Thakker, GroceryDive
March 11, 2019
∑ Whole Foods has denied reducing employee hours following parent company Amazon's starting wage increase to $15 an hour in November, Business Insider reported. The grocer said employees worked the same number of hours in January and February as they did the same period last year.
∑ The Guardian had previously reported that the company had cut workers' hours. The report was based on a leaked company email and input from anonymous employees. Workers told The Guardian that the reduced hours have led to under-staffing issues.
∑ "We are proud to have increased the hourly wage for all store team members, and we will continue to schedule labor hours based on individual store needs to create the best experience for our team members and customers," the Whole Foods spokesperson told Business Insider.
As the biggest name in natural foods retailing, Whole Foods' treatment of its workers has always been under the microscope. The chain doesn't always respond to calls for improvement or accusations that it's not doing enough, but the fact that it responded in this case indicates just how influential The Guardian's report has been with consumers and employees.
In February, approximately 20,000 jobs were created and the national unemployment rate fell to 3.8%. Unemployment hovered below 4% for much of 2018, and retailers across the board have struggled to find and retain employees. To combat this trend, Whole Foods' parent company Amazon increased starting wages to $15 for all employees and bumped up pay by $1 for employees already making more than $15. Team leaders saw a $2 increase to their hourly pay.
The plan elicited grumblings from the start, and Whole Foods employees have been vocal about their concerns that Amazon is introducing unfriendly labor practices. Employee complaints also surfaced back in September, when workers attempted to unionize to push for better work benefits, pay and profit-sharing.
The United Food and Commercial Workers International Union has called out Whole Foods and Amazon in a statement...
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The Amazon Problem
by Briton Ryle, Wealth Daily†
March 10, 2019
Value is a funny thing...
The most valuable company in the world right now is Google (or Alphabet, if you wanna get technical ó personally, I don't see why we need extra names for companies, it just confuses things), with a market cap just shy of $800 billion.
A few months back, it was Amazon, when it was the first to break that magical $1 trillion barrier (founder/CEO Jeff Bezos also became the world's richest man around the same time). Both Apple and Microsoft are close enough to keep things interesting.
Rounding out the top 10, there are two Chinese companies ó Tencent and Alibaba ó as well as Buffett's Berkshire Hathaway, Facebook, JP Morgan, and Johnson & Johnson.
If you want to talk biggest company by revenue, it's Walmart, with over $500 billion in sales. (Walmart is also the world's third-largest employer, with 2.3 million full-time employees ó just behind the 2.5 million people "employed" by China's People's Liberation Army).
If we exclude five oil companies and China's State Grid, the remaining top revenue companies are Toyota, Volkswagen, and Berkshire Hathaway.
Are you seeing a pattern here?
What I see is that the companies that take in the most cash money from sales of their products are not considered to be the most valuable companies from an investment perspective.
There's a good reason for this: profit margins. Google makes 22 pennies in profit on every dollar it takes in. Walmart makes 1.3 pennies. For investors, it's the profits that put food on the table. That's why Walmart is "worth" just $300 billion, while Google is $800 million.
Another observation about those lists: The most valuable company in the world is the one that figured out how to turn the internet into one big store. Think about it. If you send someone an email (from your Gmail account) saying you need new shoes, guess what happens? You start seeing webpage ads from Nike and Target about shoe sales. God forbid you actually google "new shoes" ó you'll be seeing those ads for the rest of your life...
The Real 1% ...
Luck or Skill? ...