The financial news is buzzing with the analysis of the earnings reported from Amazon and the trendline toward potential trouble in the waters ahead. The recent acquisition of Whole Foods and the expenses on the balance sheet compared to the offset from the investor and the average consumer portends a future that is uncertain for the mammoth online retailer.
The question I find myself asking, from the perspective of one who has covered mergers and other financial news, is: has Amazon reached an oversaturation point?
The investment analysts on Wall Street are stating that investors are fatigued with the process of shelling out huge sums of money for Amazon stock shares. The consumer side of the business also seems to be displaying signs of fatigue as well. The company is starting to find out that it is difficult to grow your base membership business when the Prime subscription cost is $99 per year.
The question that Amazon should ask themselves is: should we put in place a tiered subscription structure to widen the potential consumer base of the business? The answer to that question will go a long way toward the determination of the future direction of their business.
The other solution they could determine is that they could market the Prime membership differently: instead of focusing on the $99 per year cost, they could break it out into a monthly cost. This type of marketing strategy might appeal more to a younger demographic and to families that are feeling the budget squeeze.
The stock value analysis of Amazon seems to indicate troubled waters ahead. The blue-chip stocks traded on the major indices all have “breaking points”. The averages for stock performance whether by month, by quarter, or the most common: the 52-week average; all provide a snap-shot of the financial picture around the given stock valuation for a company.
The “breaking point” on Amazon is a staggering figure of $925, according to industry analysts. That point seems to be approaching unless the trend lines change. The long- range forecast for the company, and the analysis around their balance sheets, suggests that the expenses stemming from the consolidations of Whole Foods and other businesses will impact their overall outlook.
The reaction from industry analysts and those within the financial markets has been mixed overall with respect to Amazon and their future path. These groups include a faction which maintains that the Amazon purchase and consolidation of Whole Foods will eventually have a negative impact on the company from both an expense and strategic perspective. The variables of external factors that could impact their profit margins now increased exponentially with the inclusion of a retail grocery business.
The reality is that no company is “bulletproof”, no company is immune to the outside forces driven from marketplace supply and demand. Amazon will still remain one of the most influential companies in the world, but everyone goes through a slump. The average consumer will still enjoy the convenience that their shopping experience provides, while another group of consumers will choose another site for their shopping, and still yet another group will shop primarily in brick and mortar stores.
In my view, Amazon is heading toward an oversaturation point. They should adapt, like any other business, with a strategy that addresses ways to reinvigorate their core customer base. They also need to determine ways that they can attract new customers in younger demographics both now and in the future.
The company continues to be a leader in both technology and convenience in the way we can obtain or consume a huge range of products. However, the Whole Foods acquisition has changed the overall public perception of Amazon into a type of “grim reaper” for American small businesses and the jobs that they create.
A stroll through your local Whole Foods store today will invariably include an “end cap” shelf space selling the Amazon Echo, which is a stark departure from what Whole Foods built their brand imaging around over the years. These types of changes could serve to alienate the core customers of the Whole Foods brand in the short term.
In addition, Amazon continues to grow, especially in certain states such as my home state of New Jersey. The first-hand accounts that I have been told about the negative quality of life impact that the Amazon distribution center expansion has had in the area outside of Trenton, are incredible. The constant rumbling of trucks and the increased traffic congestion and noise are just naming a few of those adverse impacts.
Those negative effects are followed by accounts of the working conditions at the New Jersey distribution centers as well as the corporate office roles which support those sites. The company culture has been exposed as one where the employees are pushed beyond their limits and that working conditions need improvement.
Amazon will have to contend with this image problem amid a rising tide of expenses as well as a potential stock sell-off if the share price drops below that breaking point. The oversaturation of Amazon in the marketplace has begun, the repercussions will have a significant impact on the retail industry space, the consumer, and the economy in the future.