Friday, September 21, 2012

Retailers Feeling Threatened By Amazon

Online retailing is real and the biggest threat to brick and mortar stores is the ability to get the same products online and in some cases cheaper.  Worse still, consumers can use box stores to browse while engaging in comparative pricing online.  And the biggest threat certainly comes from the leader of online retail, Amazon.

So it is  not surprising that stores like Wal-Mart and Target won't sell the Amazon Kindle line of products, it is that they had added their products in the first place.   "Amazon has already tested physical stores for other goods. Now, with two large chains no longer selling Kindle, speculation has grown that the dominant online retailer could open its stores where shoppers could try out and buy Kindles."  Certainly, Wal-Mart and Target, Best Buy and others have extended into the online space to compete with Amazon; it just seems odd that Amazon would consider building out a physical retail presence to match these big box stores.  It seems to me that Amazon's strength is that they don't have stores with high rents and other  fixed expenses to lower their profit margin.  Wouldn't Amazon be better served investing further in the distribution side of the business, perhaps taking an ownership stake in UPS or Fed Ex, and thus further streamline the process of moving product from warehouse to home.

Why Wal-Mart and Target thought carrying the Kindle was a good idea in the first place will always be questioned.  They knew from the outset where Amazon was coming from.  For Amazon, the question may be that the loss of these retail partners impact their Kindle business, but I doubt it.  Still if Amazon needs to become a retailer, maybe a Barnes & Noble or Toys R Us buyout is an opportunity for them.

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