A SWOT analysis fills readers in on the good, the bad, and the ugly parts of a business. Some companies appear to be very lopsided by the end of this type of analysis. Amazon.com, Inc. (NASDAQ:AMZN) has a mixture of strengths and opportunity, but how will this online giant fare?
Amazon is simply enormous, and plans to grow even more. At Amazon’s peak in 2012, the company was selling 306 items per second. In other words, it sold as much as 26.4 million items in a single day. With that type of sales, it would be tough for a business to go out of business–especially after generating $64 billion of revenue in the past 12 months. How did Amazon.com, Inc. (NASDAQ:AMZN) start from nothing and become the world’s largest online retailer in just 19 years?
Cost leadership strategy is the most obvious way Amazon has accomplished this feat. The idea is simple: Offer products and services for a cheaper price than your competitors. One of the ways Amazon accomplishes this is by establishing efficient logistics and distribution. Amazon has fulfillment warehouses spread around each of its established countries, so that shipping is cheaper for Amazon.com, Inc. (NASDAQ:AMZN) and gets to its customers as soon as possible.
Finally, one of the obvious strengths of this company is its lack of overhead costs. Amazon accomplishes virtually everything listed above because it doesn’t have any brick-and-mortar stores like most of its competitors. Utilities are minimal, the purchase of land doesn’t exist (except for warehouses), and the need to have an extensive sales force disappears.
It seems as though Amazon has it made, right? Well, there are still some issues the company needs to overcome.
One of the strengths of this retail giant doubles as a weakness. Customers can walk into a Wal-Mart (NYSE:WMT) , purchase whatever item they were looking for, and walk out with it immediately. With Amazon.com, Inc. (NASDAQ:AMZN), customers can’t see or touch the item before buying it, and certainly can’t try it out.
A lot of Amazon’s products sell at zero margins, with the mindset of eliminating its competition. In the short term, that’s great, as mentioned in the section above. In the long term, doing thus hurts Amazon’s profits, and competitors will learn to adapt. By examining Wal-Mart, which initially had the same concept, it becomes obvious that competition is still a driving force in retail.
For investors, the most glaring weakness of Amazon.com, Inc. (NASDAQ:AMZN) is its price. Let’s face it — whether you’re comparing price-to-sales or price-to-book ratios, Amazon is about four times as expensive as Wal-Mart. Wal-Mart’s P/E is 15.4, while Amazon’s P/E barely breaks the 1,600 mark. It’s very expensive, and that will certainly scare some investors away, despite its attractive opportunities.
Amazon.com, Inc. (NASDAQ:AMZN) Prime and AmazonFresh may offer the best opportunities for Amazon, despite others, and are funded, in part, by membership fees.
Amazon Prime offers its members free two-day shipping after paying an annual fee of $79. Interestingly, this method has rewarded the company kindly. Amazon Prime members spend twice as much as non-members on an annual basis, and a 2011 Piper Jaffray survey showed that 92% of Amazon Prime members planned on renewing their membership. There are currently over 10 million Amazon Prime members.