Amazon Busy Digging Its Own Grave
In order to lower the time between a customer pushing the "order submit" button and delivery, Amazon must sacrifice a portion of the efficiency that allows it to remain competitive against retail stores. Instead of focusing on costs, Amazon is moving closer to the retail model.
Is the retail or near-retail market really the place Amazon wants to go? Amazon must know the competitive landscape in retail is significantly different from mail order.
Best Buy's (BBY) primary business model is retail, and we can see how that has worked against lower-cost online competitors Amazon and eBay (EBAY) . But is it only "showrooming" from Amazon's customers inside Best Buy that resulted in lower revenue and earnings for Best Buy? I believe Best Buy's greatest competitive environment is from other retailers, not Amazon.
Instead of focusing on cost control, improving margins and remaining competitive on price, Amazon is counting on greater sales (and maybe earnings) from falling delivery times. Amazon is losing its greatest competitive advantage.
If you regularly buy products on eBay and Amazon, you know many of the products are offered by the same merchants and Amazon allows third-party sellers to list products.
What you may not know is that the selling fees for eBay average less than the selling fees on Amazon. This is why you may have found the same item sold by the same merchant for more on Amazon than on eBay. Amazon's merchant fees are gravy compared to selling its own products, and are needed to have an expansive inventory.
However, when checking the same merchant's price on eBay or the merchant's Web site is only a click away, the ability for Amazon to increase margins is naturally constrained. Why should Amazon investors anticipate higher share prices if product sales margins and merchant fees remain under pressure?
My good friend Rocco Pendola correctly pointed out in Apple Competes With Its Unwritten Future that investors of almost all timeframes have made money.
One very popular investing style that never appears to go out of fashion is the musical chair method. I refer to it as the Thanksgiving turkey theory of investing. If you read "Fooled by Randomness" and "The Black Swan" by Nassim Nicholas Taleb, you know how this investment thesis concludes.