Target demonstrates Amazon still rules online commerce.

by Kris_Tuttle on May 4, 2012

Ama­zon ($AMZN) is a con­tro­ver­sial stock these days to be sure. We see 3 to 6 notes a day from short sell­ers about how this com­pany is wildly over­val­ued / about to crash. The fun­ni­est one though is the recent flurry on the back of Tar­get say­ing they would no longer sell the Ama­zon Kindle.

Does any­one else think this is sim­i­lar to pub­lish­ers say­ing they won’t sell books on Ama­zon and music labels say­ing they won’t do busi­ness with Apple? You may not like it but stop­ping it is not an option.

As a fam­ily man I like Tar­get ($TGT). Con­sid­er­ing the way kids go through clothes you have to love the folks at Tar­get for let­ting you get new wardrobes for your kids at remark­able prices. It’s also great for plas­tic con­tain­ers, house­hold sup­plies and stuff like that. My first reac­tion to the story that they were going to stop sell­ing the Ama­zon Kin­dle was “what they sell electronics?”

Tar­get has tried to be more rel­e­vant online but never suc­ceeded. They sell the kind of stuff you go to the store for. Ama­zon and Tar­get should actu­ally be good part­ners. Tar­get man­age­ment should really think about that. You aren’t really com­peti­tors. Ama­zon doesn’t have stores remember?

Tar­get may think that sell­ing the Kin­dle is aid­ing and abet­ting the com­pe­ti­tion. The short-sellers on Ama­zon sug­gest that “Best Buy will be next!” Maybe they will. Both com­pa­nies give you another rea­son not to visit their store. Which by the way we can tell you is 100% linked to suc­cess. If you have phys­i­cal assets and fixed costs like Best Buy the whole point is get­ting more bod­ies into the store and increas­ing the propen­sity to buy just a lit­tle tiny bit. That’s all there is to it. Get­ting philo­soph­i­cal gets you into bank­ruptcy court. Just ask Cir­cuit City.

The time to stop Ama­zon was at least 10 years ago. Too late now. On the retail side there is such a big fun­da­men­tal dif­fer­ence which Tar­get can never even hope to address: selec­tion, avail­abil­ity and price. If I need a garbage can I’m going to Tar­get. I know they have a few and one will be find. But if I want a DVI to VGA cable? What about a pair of 12″ scis­sors? Clay Shirky’s new book? Flax seed flour? In some cases yes or maybe but they might also be out of stock. So you just pay for prime and buy every­thing at Ama­zon. Prices are good and every­thing arrives at your doorstep in 48 hour or tomor­row if it’s worth $4 to you.

There are con­cerns of course. What about mar­gins? What’s the right mul­ti­ple for this? Etc. But argu­ing that some­how Ama­zon is going to be dealt a “blow” by Tar­get or Best Buy reflects a basic mis­un­der­stand­ing of the mar­ket, con­sumer expe­ri­ence and the business.

This is the first of a three part look at Ama­zon that will shift into their cloud ser­vices and then into eBooks. The Sound­View Tech­Fund (which we advise) is long Ama­zon stock as a core position.

The biggest rea­son  to own Ama­zon in the end may be Jeff Bezos. Steve Jobs is gone. Steve Ballmer is clue­less and based on what we see at Tar­get, they don’t get it either.



Comments on this entry are closed.

Previous post:

Next post: