Planet Amazon

It was a good Christmas for retailers. MasterCard says holiday sales were up 7.9% over last year. MasterCard calls that number “solid”. They have a mastery of understatement, if not economics.

According to the NRF the best growth in sales since the Great Recession was 5.2% in 2010. 7.9% would be more than solid. It would be a virgin birth-level miracle. Christmas was fine. Christmas is almost always at least fine in this country. People claiming otherwise are commies or fools, it doesn’t matter which. Put sales growth for the season at about 4% and assume most of it went to Amazon because they’re in a whole different league than the rest of the retail world.

One stat: Amazon got 3-million people to sign up for Prime during the 3rd week of December. Prime is $9.99 a month or $120 a year. No one knows how many members there are but 60 to 70 million isn’t out of the question. That’s $9 billion in revenue per year being paid for the privilege of free 2-day shipping and streaming videos. Target won’t do $9 billion in on-line revenue for all of 2015.

This was unquestionably, beyond any shadow a doubt the year of Amazon. The press release from Amazon this morning reads like something a little kid would say when he imagined himself being a CEO. Amazon isn’t ahead of other retailers. It’s in a different universe. There is no weather where Amazon exists. No one gets trampled and you never see meth-smoking chicken thieves at Amazon.

All they sell at Amazon is everything 24 hours a day 365 days a year. By next Christmas Amazon will have same day shipping nationwide. They’re already doing it in many cities and it’s not with drones or trucks. Amazon is simply deploying vans and hiring delivery agents the way Uber hires drivers. Amazon doesn’t need any breakthrough to get to same-day delivery. They can scale more or less with what they have and a few distribution centers. Next Christmas it will be almost as fast to order online as it will be to go to a store. There’s absolutely nothing to suggest that Target or Walmart are aware of this existential threat to their businesses.

Walmart says it’s going to spend $20b on buybacks and $1b a year on supply chain and online. Last week there were reports of Target getting ready to test an “Apple Pay like system”. History won’t be kind to the people in charge of allocating capital at these companies. Amazon is growing 20%. Target and Walmart are not growing at all. WTF is Walmart buying back shares instead of competing online?

Retail has always been distribution. Sears was the first US retail empire. It was built on catalogs. You could buy a house out of a Sears catalog. This wasn’t that long ago. My friend, Cliff’s mom shopped almost exclusively by Sears catalog. It was like the internet in the form of a phonebook and it made Sears huge. The company hired army vets to iron out distribution snags had stores to pick up the slack. Sears was a marvel of efficiency and practically the official merchant of the American 50s and 60s.

Sears was replaced by Walmart. Sam Walton built Walmart around the concept of hub and spoke distribution. Where vendors once stocked individual stores Walmart got its own trucks and spread out its own distribution centers regionally. Then he built huge box stores on the outskirts of town and lured in customers with retail prices that were lower than what small stores were paying wholesale. Community groups wept crocodile tears for folksy stores then drove 20 miles to buy everything for half as much. Walmart feasted on these mom and pop stores until they were gone. They ate up Sears itself just for good measure.

Now Walmart and Target are the mom and pop stores. Amazon has a better model. Not all the buybacks in the world can change the basic economics of Amazon’s advantage over Target and Walmart. Walmart in particular has the whiff of Sears in the late 90s. The stock market seems to realize it already. The first sign the big box chains are really paying attention will be when they start making big, desperate acquisitions in e-merchants. Near as I can tell that’s Jet.com’s entire business model.

Shares of Amazon are up 27% over the last 3 months and 116% over the last year. I’m long Amazon and a shameless fan boy but even I think it’s probably due for a rest. Here’s how it stacks up against various competitors over the last quarter and for the year. I’m also long Abercrombie (ANF) and Lululemon (LULU). No video today. I’m heading to the mall with my teenage daughter while she still thinks I’m cool. Back later…

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