This week’s news Amazon a set to buy Whole Foods in a multibillion dollar transaction will have sent shockwaves through many retail sectors. As soon as the Amazon deal was announced, and it has yet to be confirmed with Walmart rumoured to be a counterbid, analysts were already downgrading the profits of companies in the food sector. Such is the power of Amazon that at best margins will come under pressure and at worst Amazon will grab a chunk of the main retail markets.
Slow to adopt online presence
Whole Foods was one company identified by analysts some time ago which had failed to grasp the online arena and was falling behind competitors. If Amazon was to take over company this would all change, physical stores might disappear and the company would work with Amazon to crush margins in some of the high margin areas of food retail. Many might wonder why Amazon would look to undercut margins, and effectively undercut its own profit, but Amazon works on a reduced margin and large increase in sales.
Those companies who have yet to embrace the online arena will struggle, will be pushed to one side and will lose customers to the likes of Amazon. There is no excuse for not having an online presence whether this is in food retail, clothing or any other area of business.
What might Amazon target next?
You might have read that Amazon has already targeted the pharmaceutical industry and is looking to sell medicines and drugs online. This is an area which the company has been looking at for many years but it now seems that the blue touch paper has been lit and serious investment has been forthcoming. So, we have food retail and a potential move on medicines and drugs, so what next?
The fact is that Amazon has a reputation 2nd to none, customers trust the company so it is not difficult to attract new business. The main problem for Amazon is there are so many different markets in which the company could be competitive but it is a case of focusing on them one at the time. These building blocks will build a massive business, even compared to the multibillion-dollar business we see today, and Amazon could grow significantly in size in the short, medium and longer term. The only major issue might be regulators who may class the online shopping arena as one “market” and challenge the influence and the power of Amazon.
Is the physical store dead?
Many might have you believe that the physical store is dead with regards to retail but this is most certainly not the case. Not only will the larger companies still have a presence on the high street, and out-of-town stores, but they will also have an online presence. There is an opinion that eventually the market will turn full-circle and more focus will move towards physical stores but in all honesty this seems to be some way off. When you also take into account the type of 3-D images and real time video feeds which can be uploaded to sell products, do you really need to go into a store?
It will be interesting to see how Amazon progresses with the acquisition of Whole Foods and whether indeed regulators get involved as some point. Amazon is building on its already impressive reputation and attracting customers like a light attract moths.