Earlier this week, Wal-Mart Stores, Inc. (NYSE:WMT) announced that it was freshening up its produce by procuring the lion’s share of it directly from farmers. How ironic, given subsequent word of the AmazonFresh local delivery service that may be rolling into big cities sometime soon.
Amazon.com, Inc. (NASDAQ:AMZN) has been testing out local grocery delivery in Seattle for two years. According to a Reuters report, it plans to expand the AmazonFresh service to the Los Angeles and San Francisco Bay areas, and it may stomp into 20 other urban markets in 2014<.
You’ve got to wonder how many corporate executives hit the bottle upon hearing news of a giant Amazonian step into their market. Oh, to be a fly on the wall.
Taking out the B-list
Just contemplate Best Buy Co., Inc. (NYSE:BBY), which has long been a victim of “showrooming,” where consumers window-shop for products in its stores and then buy them from online sources, mainly Amazon.com, Inc. (NASDAQ:AMZN). Also consider Best Buy Co., Inc. (NYSE:BBY)‘s most recent — and pathetic — quarterly tidings. Maybe that quarter wasn’t entirely Amazon.com, Inc. (NASDAQ:AMZN)’s fault, but Amazon certainly isn’t helping the electronics retailer pull off a turnaround.
Amazon.com, Inc. (NASDAQ:AMZN) certainly contributed to the failure of Borders and has been contributing to Barnes & Noble, Inc. (NYSE:BKS)‘s struggles. Although Barnes & Noble, Inc. (NYSE:BKS)’s Nook was long a strong contender to Amazon’s Kindle, things have gotten a little less certain. Nooks did not move well during the holiday season, and fourth-quarter sales of the devices fell by 26%. Barnes & Noble’s stockpiles of the devices led to discounts and writedowns of inventory, as well as a quarterly net loss.
Meanwhile, Barnes & Noble’s shares have been incredibly volatile recently; some have gambled on the idea that Barnes & Noble could sell Nook to Microsoft Corporation (NASDAQ:MSFT) for about $1 billion. While that cash windfall might be welcome news to short-term investors, the bookseller would be left with nothing but its struggling core business over the long haul and would probably lose traction against Amazon.com, Inc. (NASDAQ:AMZN) in an even more dramatic fashion. (The rumor about an imminent Microsoft Corporation (NASDAQ:MSFT) deal was later proven to be just that — a rumor.)
Stocks that could get the Amazonian kiss of death
Stories like these don’t bode well for retailers in the areas Amazon targets. The e-commerce giant’s “whatever” attitude about making big bets against entrenched businesses is an amazing thing to even contemplate. It’s huge enough, popular enough, and immersed in consumers’ lives enough to take profit hits to drive sales volume. It’s been doing that throughout its history, contributing to its monstrous growth. The deals and goodies it offers through its Prime membership make customer loyalty and the stickiness of its offerings even stronger.
It’s not far-fetched that Amazon could become one of the primary consumer answers for everyone looking for just about anything. It’s well on its way. Much has already been made of a very possible strategy in groceries: simply acting as a loss leader as Amazon customers throw other higher-priced merchandise into virtual carts.
Grocers on the high end and the low end may fall victim to Amazon’s cost-cutting habits in the grocery business, but I suspect middle-of-the-road grocers like Safeway Inc. (NYSE:SWY) and The Kroger Co. (NYSE:KR) are probably the most vulnerable.
High-end grocer Whole Foods Market, Inc. (NASDAQ:WFM) is probably not too worried. It puts heart and soul into its customers’ needs through its focus on lofty ideals, like environment, fair trade, and healthy eating. Cooking classes and a planned push into health resorts add a lot of experience to the customer experience.
While Safeway Inc. (NYSE:SWY) and The Kroger Co. (NYSE:KR) can try to keep up by offering organic and natural offerings, keeping up with Whole Foods Market, Inc. (NASDAQ:WFM)’ other innovations is a difficult undertaking. Meanwhile, for those who might be frequenting the more conventional grocers for the sake of convenience alone, AmazonFresh may be exactly what they were looking for.