The dominance of Amazon.com is such that even the big brick and mortar retailers are doomed, as online shopping renders conventional retailers obsolete. Right? But a new report from the respected Moody’s Investors Service [registration required] says that “Amazon is actually the weakest of the large retailers.”
Amazon pulls in $145 billion per year, but WalMart pulls in $308 billion. Online sales make up only 10% of retail purchases.
Amazon has 50 million Prime Members. But Costco has 85 million members.
As for the fear that Amazon, with its acquisition of Whole Foods, will now dominate food sales, the report observes that Americans spend some $800 billion per year on groceries. WalMart accounts for $200 billion of those sales, a whopping 25% of the total. Kroger is next with $130 billion. Then Safeway with $60 billion. Then Costco with $50 billion. Even adding in Whole Foods, Amazon will sell only $20 billion worth of groceries.
In fact, says the report, Amazon does not lead in any retail category. Amazon sells only one-third of the electronics that BestBuy does!
What has driven Amazon’s success is its stock price. And yet the company’s actual profits are quite low. Amazon famously sells at a very low margin and plows its earnings back into its business. This may be commendable and good for consumers, but this business model has drawbacks for the company. Amazon’s most profitable part of its business is its cloud services, not retail sales.
So I refuse to be skeptical about Amazon. Still, the Moody Report reminds us that the effects of technology observe certain limits: specifically, the limits of human nature.
I remember in days of yore when I watched on my black-and-white TV reports about what the astronauts would be eating. They would be able to get all of the nutrition they needed from pills, tubes, and Tang mixes. Some people thought that we would all be eating like that before long. But it turns out, people like to eat. And now that we have reached new heights of technology, on our color big-screen digital TV monitors we are watching celebrity chefs and going to restaurants that feature local products and high-end versions of the comfort foods of our childhoods.
Similarly, online retail will change our economy. But people still like to go shopping.
Online technology and virtual reality will offer new kinds and new levels of entertainment. But people still have a need to occasionally get out of the house.
Illustration from Pixabay, CC0, Creative Commons