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All Contents © 2018The Kiplinger Washington Editors
By James Brumley
| November 17, 2017
Amazon.com (AMZN) has brought pain and misery to numerous companies since its founding in 1994. This well-documented phenomenon really picked up the pace over the past decade, however, with many organizations simply unable to beat the dot-com company in terms of price and delivery speed.
The conversation isn't new, but it gets more interesting by the day. Amazon not only is chipping away at these companies’ businesses, but it also keeps adding new targets. The e-commerce icon is leveraging its entry into new businesses such as groceries, where Amazon is using storefronts to gather customer data, bring consumers into the fold and eventually extract revenue from them – one way or another.
The “long game” is working.
While Amazon has already dealt plenty of damage, the suffering isn’t over. Dozens of outfits are fighting a losing battle with America's biggest online retailer, and still more companies – not just in retail, but across various industries – could start to feel the pain of Amazon’s ever-expanding tentacles as the years roll on. Some will survive ... but some won’t.
Here are 32 companies that are vulnerable to Amazon’s never-ending expansion.
Companies listed in alphabetical order.
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In the same vein that Amazon threatened the book industry early on in its life, it could just as easily prove problematic for audio book platforms like Playster or Audiobooks.com.
Amazon has its own audio book venue called Audible. The service boasts the largest audiobook library in the world, and at only $14.95 per month, it’s affordable – an offer made even more valuable in light of perks such as discounts and offline listening.
Consumer review website Top Ten Reviews recently put all the major audio book services to a comparative test and found that Amazon’s Audible was indeed the best of the bunch, based on price, flexibility and the right to keep the title once it has been secured.
Audible is well-positioned to put serious pressure on the likes of Audiobooks.com and Playster simply because Amazon already has such a deep reach with so many consumers that use its e-commerce platform.
So there’s no misunderstanding, Amazon.com already has made life pretty miserable for bookstore chain Barnes & Noble (BKS). That pain began back in the late 1990s, when Amazon was mostly a bookstore, beating traditional book-buying venues in terms of price. The advent of e-books, tablets and readers only fanned the flames that ultimately allowed Amazon to burn brick-and-mortar operators.
But Amazon is hardly done torturing Barnes & Noble yet.
Aside from more of the same migration from printed paper to digital media, Amazon now owns and operates 13 physical bookstores of its own, with a handful more on the way. None of these locales packs as many actual books into the store as Barnes & Noble boasts, mind you, but it doesn’t really matter. The sheer presence of brick-and-mortar competition branded as an Amazon entity is just interesting enough to siphon Barnes & Noble’s remaining patrons.
Courtesy Mike Mozart via Flickr
Best Buy (BBY) was and arguably still is the company most vulnerable to Amazon’s entry into its business. Indeed, the practice of consumers visiting a Best Buy store to look at a product, then buying it from Amazon.com at a lower price, became so prevalent that it was given a name: “showrooming.” However, with some time, it has figured out how to compete with the e-commerce giant. Revenue essentially is flat and net income is barely growing, but Amazon’s threat to Best Buy appears to be contained.
But remember: This is Amazon. Best Buy shareholders want the company to make a reasonable profit, but Amazon nor its investors have the same concern. Market share – sometimes at any cost – is the name of Amazon’s game, and it may just be a matter of time before the e-tailer turns up the heat on Best Buy again.
As Wedbush Securities analyst Michael Pachter bluntly opined not too long ago, “There’s really no reason for Best Buy to exist.”
The acquisition of Whole Foods Market isn’t the only foray Amazon has made into the food business. It has been doing online grocery purchases and pickups via the AmazonFresh brand for a while now, and back in July it began selling pre-packaged meal kits to some Prime subscribers.
A meal kit is exactly what it sounds like: a collection of related fresh foods and ingredients, as ready as possible to heat and eat right out of the package. They’re time-savers. Plus, they allow users to enjoy foods via delivery they may not even have access to at their local grocery.
Amazon’s entry into the meal-kit business takes dead aim at several other smaller players already in the business, including Home Chef and Plated. Most vulnerable to Amazon’s entry into this race, however, is the biggest. That’s Blue Apron (APRN), which controls 17% of this fragmented market.
Some were looking for Blue Apron to become the dominant name in the industry, possibly aggregating many of the smaller players. But now that Amazon – with its deep pockets and long marketing reach – has entered the fray, that seems unlikely.
Membership-oriented discounter Costco (COST) has defended its turf well against Amazon’s onslaught. However, the bigger Amazon gets and the more scale it achieves, the better it gets at competing with Costco in terms of price and convenience. In fact – and a little ironically – Costco proved out the idea of paid shopping memberships that eventually became Amazon’s Prime program.
Perhaps the most alarming narrative of this showdown is how disinterested Costco seems about doing anything to combat it. Costco Chief Financial Officer Richard Galanti commented in the company’s most recent earnings call, “As it relates to the publicity and the news and the noise around Amazon and Whole Foods, all we can do is perform.”
Given that Amazon has been a well-known threat for a while, one would have expected a more definitive and deliberate initiative. Market commentator Jim Cramer responded, “It was very disturbing, because it basically just says, ‘Amazon is coming for Costco, and Costco doesn’t even care what it says.’”
That Costco isn’t more worried about Amazon is the biggest reason shareholders should be worried.
Courtesy Jamie McCall via Flickr
One wouldn’t think Amazon would take something as basic and accessible as batteries seriously. But it is. Just ask Energizer Holdings (ENR), which makes Energizer-brand batteries. It has watched the e-commerce giant launch its own private-label battery line under the “Basics” brand, and as of the middle of this year, Amazon’s offerings accounted for a third of all batteries sold online.
It’s still not earth-shattering for Energizer, as only 5% of battery purchases are made online today. However, if UBS is right about its guess that 17% of battery sales will be done online by 2025, Amazon’s stronger online presence poses a real threat to one of the most recognizable names in the battery market.
No, not even Etsy (ETSY) – the purveyor of (mostly) handcrafted goods – is immune to the Amazon machine. In late 2015, the e-commerce giant launched Handmade at Amazon, and has gotten a little bit of traction with the young venue. It hasn’t slowed Etsy’s growth pace down enough to sweat just yet, but the threat still is there should Amazon turn up the heat.
That may happen soon. In October, Amazon unveiled its Handmade Gift Shop, highlighting certain products under the Handmade at Amazon umbrella that could sell particularly well heading into the gift-giving season.
D.A. Davidson analyst Tom Forte thinks it’s good reason for Etsy and its shareholders to be concerned, saying, “That suggests that Amazon likes something about it. They appreciate that it’s expanding their assortment, because Amazon wants to be the place where people go to buy everything.”
Forte added that if something isn’t paying off for Amazon, it’s not afraid to get out of the business rather than double down on it.
Courtesy Chris Potter via Flickr
It’s surprising that video-game retailer GameStop (GME) has held up as long as it has, given the paradigm shift from console-based video gaming to the market’s preference for mobile games and downloaded games. Revenue is drifting lower, but the company’s trailing-12-month sales of $8.7 billion isn’t a far cry from its peak 12-month tally of $9.7 billion in 2011. Many retailers have been hit harder.
However, one can’t help but wonder if the only reason Amazon hasn’t put GameStop into a tailspin is simply because it hasn’t tried to yet. If Amazon.com does piece together an organized threat to the video-game retailing industry, it could disrupt GameStop the same way it’s starting to disrupt Etsy’s handcrafted schtick and even fabric stores (more on that in a minute).
Amazon already has shown interest in the next era of the video gaming industry. It spent $970 million in 2014 to become the sole owner of gaming website Twitch, which allows gamers to share and even monetize their gameplay. It’s not clear what exactly Amazon wants with the venue, but the company certainly could leverage the platform as a sales tool if it wanted to.
Courtesy Torbakhopper via Flickr
Not even food ordering and delivery service providers like GrubHub (GRUB) are immune to Amazon’s ever-growing presence.
Amazon Restaurant largely has been overlooked, most likely because it’s still more experiment than product. But it’s already making food deliveries in about 20 major markets, connecting eaters with restaurants by sharing many restaurants’ menus online. Amazon recently partnered up with Olo to add 200 restaurant brands such as Chili’s, Five Guys and Wingstop to Amazon Restaurant’s offerings.
Lots of smaller players also do the same thing GrubHub does, which is worrisome in its own right. But what’s concerning about Amazon is the sheer reach it already has with consumers, which could be easily leveraged to prompt the use of its platform rather than another.
At first glance, Amazon doesn’t appear to be in the same business review arena that Yelp (YELP) and Angie’s List – now owned by IAC/InterActiveCorp (IAC) and paired with IAC’s HomeAdvisor marketplace – helped to create. But take a closer look.
Amazon is slowly but surely creeping into HomeAdvisor’s turf with Amazon Home & Business Services, connecting homeowners with plumbers, electricians and handymen needed to take care of their dwellings. Delve into each provider’s listing, and you’ll find a collection of customer reviews and ratings.
These online reviews take dead aim at HomeAdvisor and Angie’s List, and once again, Amazon can leverage its existing consumer base to become the go-to destination to find a home repair professional, and read other customers’ experiences with those service providers.
So far Yelp – which mostly provides reviews of restaurants and retail shops – hasn’t been threatened by the advent of Amazon Home & Business Services. But don’t forget that Amazon is wading deeper into restaurant and food-delivery waters. There’s no reason Amazon couldn’t take its system for powering home services reviews and re-engineer it to apply to Amazon’s listings of local restaurants.
Sewing and homemade clothing may be a dwindling art, but it’s not dead yet, and probably will never entirely go away. Some people just enjoy doing it, while others appreciate its cost-effectiveness. That’s why retailers like privately owned Jo-Ann Fabrics still are around and thriving – the market may be small, but it’s made up of loyal customers.
Loyalty only goes so far, though.
Enter Amazon Fabric – a cloth-and-material venue that supplies seamstresses, tailors and enthusiasts with a wide array of fabrics their local fabric store simply can’t offer due to space limitations. Like in other retail corners, Amazon has more craft selection at typically lower prices than Jo-Ann Fabrics, and increasingly savvy and cost-conscious customers will only continue to tap the popular e-commerce venue for their supplies.
Amazon’s purchase of Whole Foods threatens the grocery industry at various levels. But immediately, it might not seem like the company is targeting the middle-income-oriented market that grocers like Kroger (KR) cater to.
Keep an eye open nonetheless. It’s still a relatively small experiment at this time, but Amazon presently operates two locations that allow customers to shop online, drive to a pickup spot and let Amazon’s employees load them into a car. It also offers grocery delivery services in several select markets, though it scaled back the number of markets it serves earlier this month.
Amazon doesn’t even have to develop new services and platform to cause trouble for Kroger, either. Its original e-commerce venue offers everything from detergent to potato chips to soft drinks, delivered as cost-effectively as possible in appropriately sized boxes.
Courtesy Elvert Barnes via Flickr
Amazon doesn’t have a fitness apparel brand of its own – yet. But one’s coming. And while that’s potentially bad news for the likes of Nike (NKE) and Under Armour (UAA), one market professional thinks yoga apparel brand Lululemon Athletica (LULU) is the most vulnerable, and for a surprising reason. Last month, Canaccord Genuity analyst Camilo Lyon said, “Sharing manufacturers is not ideal, particularly with no patent protection.”
You read that right. Patent protection (or lack thereof), of all things, may prove to be a nagging problem for Lululemon once Amazon ventures into these waters.
To be clear, Amazon presents other hurdles. Lyon went on to say, “We believe Amazon will use its ever-potent price weapon to create awareness for its emerging athletic brand, as it is wont to do when entering a new category. Assuming comparable quality of product and attractive pricing, we believe Lululemon’s fashion-driven customer is likely to be the first to explore a lower-cost alternative from Amazon.” In other words, the battle still is largely about offering the right product at the right price.
Either way, Lululemon could be in trouble.
For a textbook case of the damage Amazon can do to an industry, look no further than the implosion of office supply retailers like Office Depot (ODP) and Staples.
These companies were kings of the world when computers were just becoming commonplace and a business boom around that time translated into huge demand for office supplies. But it didn’t take long for cost-conscious corporations to realize they could save money by purchasing their copy paper and other supplies at Amazon.com.
Out of necessity, the industry began to consolidate as much as it was allowed. OfficeMax was brought under the Office Depot umbrella, and Staples would have joined the party had the Federal Trade Commission not cried foul on antitrust grounds back in 2016. Since then, private equity firm Sycamore took Staples private, where it can try to turn things around without the meddling of short-term-minded shareholders.
The writing is on the wall, though. Nothing feasible can be done anytime soon to stave off Amazon’s growing presence in this race. Office Depot’s top line continues to shrink on a year-over-year basis, just as Staples’ was prior to its acquisition.
Courtesy Sean Hayford Oleary via Flickr
Even auto parts retailers fall under the shadow of Amazon, regardless of the shipping weights involved in ordering auto parts online – not that everything bought online must weigh much. A spark plug, for instance, is only a couple of ounces, and Prime members can get them shipped for free in just two days.
This is a growing problem for auto parts retailers such as O’Reilly Automotive (ORLY). One Click Retail’s Nathan Rigby pointed out earlier this month, “After long overlooking its ability to compete in the automotive aftermarket, industry analysts are finally starting to recognize Amazon as a serious player.”
O’Reilly Co-President Greg Johnson commented after the release of the retailer’s most recent earnings report that neither he nor the company felt its business had been hampered by Amazon’s penetration of this market, which has been augmented by the development of a home-grown automobile research and review platform.
However, he and other company executives appear to be in the minority about whether Amazon is doing damage to O’Reilly – and could continue to do so going forward.
Amazon Prime doesn’t just include access to streaming movies and television shows. The subscription-based product also includes Prime Music, which offers up 2 million ad-free songs that may leave Pandora (P) and Spotify customers wondering if they really need a service other than Prime.
Indeed, Amazon has already given other players good reason to worry. Despite the late entry into the race, music industry insight firm MIDiA said in July that its research indicated Amazon Music was the third largest streaming music service in the world’s key markets in terms of subscriptions. Spotify and Apple's music offering were Nos. 1 and 2. (The MIDiA study didn't consider Pandora, which utilizes a somewhat different delivery model, but Pandora’s user base of roughly 74 million listeners would technically make Amazon the fourth-biggest player of the broad internet radio market.)
Either way, as the lines between these different kinds of services are blurred and internet connectivity becomes even more common – especially in cars – consumers already familiar with and tethered to Amazon could easily choose its service over a rival’s.
It might seem like traditional print publishers like Hachette Books and Random House finally are finding some stability. The e-book industry has attracted most of the fans it can attract (largely thanks to Amazon).
But Amazon isn’t done torturing these old-school outfits just yet.
The company is moving deep into the printing press business after unveiling an on-demand printing service for self-published, independent authors a few years ago. The newer service it calls CreateSpace takes this idea to a whole new level, offering tips, advice and a la carte help not just for authors, but also for musicians and filmmakers. This melding of self-service and traditional publicizing options is leaving more writers wondering why they’d even want to bother with the likes of Hachette and Random House.
The kicker: Amazon now sells traditional publishers’ books supplied by third parties, potentially undercutting the likes of the aforementioned publishers. The relationship with smaller providers also increases the chance a book will be out of stock, prompting use of Amazon’s print-on-demand option – further negating the need for traditional publishers that normally rely on retailers making upfront purchases of massive quantities of actual books.
It’s a bigger problem than it superficially seems. Authors Guild President Mary Rasenberger recently explained, “The connection that people fail to make is that if publishers have less money, then they have less to invest. That means they can’t afford to take risks on the kinds of challenging books they’ve published for centuries.”
More profitable rivals like CVS Health (CVS) and Walgreens (WBA) already were making life miserable for struggling drugstore chain Rite Aid (RAD) – so much so that Rite Aid sold 1,932 of its stores to Walgreens for $4.4 billion in much-needed cash.
But the deal doesn’t solve the bigger problem Rite Aid faces. The company simply doesn’t attract enough customers, nor does it sell them enough merchandise to generate enough of a profit.
Enter Amazon. While it has toyed with the idea of getting into the prescription market before, each time the news is recycled, it sounds a little more serious than the last time. The premise took a huge leap forward last month when it was discovered Amazon already has wholesale pharmacy licenses in 12 states.
Chatter has surfaced that Amazon could even acquire Rite Aid to resuscitate it, but as interesting as it would be to see that implemented, the average investor shouldn’t bet on it. And an Amazon entry into the drugstore race could reveal that there’s no room, nor need, for three major brick-and-mortar drugstore chains in the United States. If so, Rite Aid may be the odd man out.
People who follow Sears (SHLD) might not be convinced there’s a major rivalry here. Sears sells a lot of apparel and tools, and not a lot of electronics (anymore), whereas Amazon’s bread and butter is electronics, not apparel. Indeed, Sears is now even selling Alexa-enabled Kenmore appliances via Amazon.com, suggesting the two companies are in some ways partners rather than rivals. But that’s not quite the case.
Just because a shopper may first visit Amazon.com with the intent of buying an appliance from Sears doesn't mean they'll do so. Amazon sells appliances from several manufacturers, and could easily redirect consumers to a different supplier. And given the uncertainty of Sears future, it's safe to say Amazon isn't putting many eggs in the Sears basket. It's also safe to say that some consumers are leery of buying anything from a retailer that may not be around to provide service in the future. Never even mind that it was Amazon (with a little help from Best Buy) that essentially wiped out Sears' electronics business.
In other words, Amazon still is doing Sears – which has logged declining sales since 2008 – more harm than good.
In the meantime, Sears’ ever-shrinking relevance has made it tough for its vendors to continue working with the company. Case in point? Whirlpool (WHR) has stopped shipping Whirlpool-branded appliances to Sears. Whirlpool still will supply Sears' Kenmore-branded appliances, but the retailer ideally would have access to the better-respected Whirlpool brand. The question is whether more suppliers will drop their relationship with a weakened Sears now that Amazon is too big to not do business with it.
Amazon.com can sell related goods and services to Whole Foods shoppers and users of its meal kit deliveries, but that’s a two-way street. Consumers who buy kitchen tools and home goods on Amazon.com are relatively easy to prod into a nearby Whole Foods store. That’s bad news for rivals like Sprouts Farmers Market (SFM) and privately held Trader Joe’s.
In fact, Amazon already is taking a toll.
In late August, when the acquisition of Whole Foods was officially closed, Amazon dropped prices on a wide array of goods sold in its stores. Whether people were seeking better prices, were just curious or both, customer traffic spiked 31% year-over-year that day. And while the growth pace ebbed, two weeks later, it still was higher. Meanwhile, an estimated 10% of Trader Joe’s customers visited a Whole Foods store that week, while 8% of Sprouts’ regular customers went to Whole Foods shortly after the price changes went into effect.
The question of that traffic’s longevity remains, but it’s clear Amazon can shake things up in this sliver of the grocery market.
Teachers Pay Teachers, for those not familiar with it, is a website that allows teachers to monetize the learning materials and worksheets they create for their classrooms. It has been a surprising (and occasionally controversial) site, turning one teacher into a millionaire in 2012. More have joined the million-dollar club in the meantime, illustrating that it’s at least possible for government-run institutions and for-profit enterprises to be successfully melded.
Amazon may be maneuvering to bring this young industry to a screeching halt, however, with a little project called Amazon Inspire. Currently in a beta (testing) phase, Amazon Inspire is an “open collaboration service that helps educators discover, gather, and share educational content” for grades K-12.
Right now, Amazon Inspire is free to use, posing a clear and obvious threat to Teachers Pay Teachers and rival sites like We Are Teachers. Even if Amazon eventually monetizes its Inspire platform, though, it can tap into its network of existing customers of other services, many of whom are also teachers.
Toys R Us has been fighting an uphill battle for some time, even before private equity firms Bain Capital, Vornado and KKR took the company private back in 2005. A then-modest Amazon was part of the challenge that the trio thought they could address, but they ultimately underestimated what Amazon would become and how it would weigh on Toys R Us.
The result? Toys R Us found itself increasingly uncompetitive with a rival that sells everything the toy retailer does, and it declared bankruptcy in September of this year.
The timing – right before the holiday season – couldn’t have been worse for Toys R Us, nor better for Amazon. With vendors hesitant to ship to the struggling retailer at the all-important time of year, Toys R Us may miss out on crucial Q4 sales, exacerbating the problem. As Howard Davidowitz of retail consulting and investment banking firm Davidowitz & Associates explained to Retail Dive, “They do more of a percentage at the holidays than anybody on the planet. Can you imagine that? What this means is — the trade cut them off — they can’t pay their bills.”
The situation allows Amazon to kick the toy retailer while it’s down. Time will tell whether Toys R Us even gets back up.
Courtesy Allie Michelle via Flickr
Ride-hailing services operated by the likes of Uber and Lyft haven’t been of particular interest to Amazon – yet. But that might not be the case forever.
Earlier this year, Goldman Sachs predicted that by 2030, the ride-hailing industry would be a market worth $285 billion per year. And if there’s anything that most people know about Amazon, it’s that if there’s money on the table, CEO Jeff Bezos eventually will be interested.
Unlike Uber and Lyft, however, Bezos likely wouldn’t care if such a venture could turn a profit. He’d be more interested in the data that performing such a service would create.
Don’t forget that Amazon already operates a program called Amazon Flex, turning ordinary people into contracted delivery drivers for packages. It also recently unveiled the controversial Amazon Key – a controversial service that lets unattended delivery drivers place a package inside a home to which they have a digital key. Compared to these initiatives, ferrying passengers actually would be a less bold move from the company.
Courtesy Ala Moana Center Williams-Sonoma via Flickr
Williams-Sonoma (WSM) CEO Laura Alber delivered an interesting comment at Recode’s Code Conference this September about whether we’re in the midst of a retail apocalypse.
“I do not believe that and I do not believe that Amazon is killing retailers,” she said. “I believe retailers’ bad service is killing retailers. And I think because of that you might not go to the malls as much as you used to.”
Her point is well-taken, even if that’s not the only reason the average retailer is struggling to fend off Amazon.com. But knowledge of the problem doesn’t actually fix it. Amazon is meeting consumer expectations given its prices and limited level of customer contact, while retailers that have plenty of in-person opportunities to thrill customers just don’t do so.
And Williams-Sonoma, regardless of Alber’s plans, is about to face an even tougher headwind supplied by an increasingly popular Amazon.com. Remember, Amazon is now able to cater to the food-centric crowd that shops at its Whole Foods Market stores. Ditto for fans of the meal kits Amazon offers.
You might not think consumer-oriented Amazon could disrupt an industrial supply house like W. W. Grainger (GWW). But you might be wrong.
Grainger’s bottom line last quarter was better than expected, but it still was down 9% year-over-year on a modest 1.5% improvement in revenue. The headwind? Grainger is cutting its prices to remain competitive with Amazon, which is wading deeper into the business supply market.
Don’t look for a reprieve in the foreseeable future. For the full year, prior sales growth estimates as high as 4% have been pared back to a range of only 1.5% to 2.5%. And that outlook was updated before Amazon upgraded its shipping services for Business Prime.
RBC Capital Markets analysts wrote in response, “Given parent Amazon’s deep pockets and apparent margin insensitivity, we continue to believe that Grainger will be drawn into further price competition, putting more pressure on its gross margin. We reiterate our high-conviction Underperform rating on GWW shares.”
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