On Amazon - Part 1

 

I have admired Amazon since they began operations in July 14, 1993 as an online bookstore and as far as I know the first online store of any kind.  The internet was brand spanking new back then and Amazon was the first business that figured out there was more to having an online business than simply adding .com to any traditional business name and setting up a website.

Since then, in the US, Amazon defined and become the model of what an online business to consumer business should be.  It took them a decade or so to become profitable as they poured all of their profits in both R&D and expansion.  This is more easily done when a visionary founder, Jeff Bezos, runs the business than any subsequent CEO more subservient to the Board and Shareholders can ever be. 

It should be noted that the Sears Catalog which began in 1888 as a watch and jewelry catalog was the Amazon of snail mail and paper catalogs.  Ironically, the Sears Catalog ceased operations in 1993, the very same year Amazon started.  I guess the Sears executives did not have the wherewithal, nor the brains, to see their catalog was the most natural business to become a dot com.

In thirty years, Amazon became the largest online retailer in the world and second only to Walmart for all retail sales.  Per Investopedia, as of December 2022, the ten largest retailers in the world are:

• Walmart
• Amazon
• Costco
• Walgreens Boots Alliance
• Alibaba
• Target
• Lowe's

 

Note:  Other references place China’s Alibaba to be larger than Amazon.

 

In 2022, Amazon had revenues of just under $514 billion and an EBITDA of $38 billion compared to $611 billion and $30 billion for Walmart.  This is imprressive growth from 0 to $514 billion and #2 status in thirty years.  

In the US, Amazon dominates online sales by a wide margin in total and in many categories.  They sell products that are distributed through their own distribution centers and as well as selling products that are distributed through the supply chains of vendors who have Amazon stores.

Amazon’s advantages are two-fold. 

First, it the online portal.  It is simply easier to find and order products on Amazon compared to almost every other retailer.  They have perfected the method.  You can only order products that are in stock or pre-order new or out-of-stock products.  You pay and the order confirmation and tracking process starts. 

I resist ordering from other retailers as their online experience is, well to use the technical term, wonkier.  Though, many including Walmart and others have closed the gap considerably since the start of the pandemic.  After all, the ordering part of e-commerce is all software based and may be the easier part of the Amazon advantage to overcome.

The second advantage of Amazon is their Distribution Centers.  This is the harder to duplicate for most traditional retailers.  For traditional retailers, their distribution centers i.e. warehouses and supply chains in general were designed to get products as efficiently to the stores where consumers would come to select their items, pay for them, and take them back to their homes.  Thus, the distribution centers of these retailers and their suppliers were designed to move cases of goods and pallets of goods in full truckloads to stores where consumers shop.  These stores are in fact warehouses… just prettier ones to create a pleasant environment for consumers who roam the aisles and make their selections off of the shelves and displays.

Amazon basically merged the retailers store and distribution center into one facility:  a new kind of warehouse.  A warehouse designed to get products from suppliers in bulk as usual but to ship individual orders to consumers in small parcels.  They had no warehouses when they started, so it was easy to design their warehouses to fulfill the new mission of delivering directly to consumers versus stores.  They replace two facilities with one and thus reduced their brick-and-mortar costs.  The traditional retailers had an existing network of traditional warehouses and stores that could not transform to the new mission with costly refurbishing of racking, conveyors, and work-flows. Amazon by constantly reinvesting into R&D has worked to stay ahead of their competitors in this regard via robotics and software. 

Oddly, it was a third-party innovation that truly enabled Amazon to skyrocket in the early 2000s.  Before the innovation of the smart phone, people had to use their laptop or desktop computers to order from Amazon.  This was convenient but only to a degree.  If you computer was not handy, a whim to maybe buy something did not always turn into a sale.  Smart phones?  They were always in our hands or within arms-reach.  With the Amazon app, it became incredibly easy and convenient to turn any whim a consumer may have into an order in a matter of seconds at any time 24/7 from anyplace.

More to follow.