Amazon's domination of retail comes down to 5 simple areas (AMZN)
Thomson Reuters
Amazon's total domination of retail is well reported by now, so it's worth considering how the company does it.
One Montana brokerage firm, DA Davidson, says the answer is "SIMPL."
"To exploit the retail market opportunity in the future, retailers will need to excel in the following areas: Social Networking, International Expansion, Mobile, Payments and Logistics," Tom Forte, an analyst at DA Davidson, said in a recent note to clients.
Noise about Amazon's take over of traditional retailers hit a peak after Amazon announced its takeover of Whole Foods for $13.7 billion. By the time the deal was made official, brick and mortar retailers and grocery store chains had lost billions of dollars of stock market value. Some companies' entire futures were held in the balance, as Blue Apron's disappointing IPO demonstrated.
Many companies aren't sitting by idly. Google and Walmart recently teamed up to take on Amazon's dominant position in e-commerce. Some retailers, like Nike, have given up on previous resistance to selling their products on Amazon's platform.
Forte's SIMPL acronym acts as a sort of measure for how well these companies are doing to attract customers in the rapidly-changing retail sector. He breaks it down like this:
- Social media: Millennials are one of the most attractive demographics for retailers, and hitting them where they are already spending their time can be a winning strategy for retailers. Both advertising and engaging with youngsters on social media is crucial to succeeding in retail, according to Forte. He rates Amazon's social media presence as the fourth best among its peers.
- International expansion: Social media is global, and can expand a company's reach well beyond the borders of its home country. Empowering global fans to be able to purchase a company's products or use its platform is important to maintain user growth. Amazon is doing well addressing the largest markets on the planet, but there are still plenty of countries missing from Amazon's current footprint.
- Mobile: Consumers' habits are increasingly trending toward mobile, according to Forte. Companies who want to dominate their industries will have "best-in-class" mobile offerings to match their ambitions. Companies should be aware that conversion rates on mobile have been lower than desktop traffic, so mobile shoppers are both an opportunity and a threat.
Amazon is doing well addressing the mobile market, as it produces its own mobile devices. It also operates a large network of apps for its various services, which seems to be a winning strategy for the company. - Payment Methods: Flexibility in payments can provide a boost to any retailer, according to Forte. Allowing consumers to shop the way they want, and pay with futuristic methods like with Apple Pay or Bitcoin, can place a company in a good place among the competition.
Amazon is one of the few companies that offers cash on delivery as a method of payment, but it also offers its own credit card to customers and a payment platform for third-party vendors. - Logistics: Widening the window for when customers are able to have the product they ordered delivered can be a boon for a retail company. Fast, free shipping has been a huge boost to Amazon, and drones and same-day grocery delivery may be next.
Amazon may seem like a logistics whiz, but the company has only 247 total fulfillment centers, compared to Walmart's 348. Walmart also boasts more than 12,000 retail locations and has been beefing up its integrations between online and in-store shopping recently.
Amazon certainly isn't perfect in all the areas it needs to dominate, but it is doing better than most, according to Forte. He rates the company a buy and has a price target of $1,300.
Amazon has grown 29.70% so far this year.
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