Amazon ($AMZN) is a controversial stock these days to be sure. We see 3 to 6 notes a day from short sellers about how this company is wildly overvalued / about to crash. The funniest one though is the recent flurry on the back of Target saying they would no longer sell the Amazon Kindle.
Does anyone else think this is similar to publishers saying they won’t sell books on Amazon and music labels saying they won’t do business with Apple? You may not like it but stopping it is not an option.
As a family man I like Target ($TGT). Considering the way kids go through clothes you have to love the folks at Target for letting you get new wardrobes for your kids at remarkable prices. It’s also great for plastic containers, household supplies and stuff like that. My first reaction to the story that they were going to stop selling the Amazon Kindle was “what they sell electronics?”
Target has tried to be more relevant online but never succeeded. They sell the kind of stuff you go to the store for. Amazon and Target should actually be good partners. Target management should really think about that. You aren’t really competitors. Amazon doesn’t have stores remember?
Target may think that selling the Kindle is aiding and abetting the competition. The short-sellers on Amazon suggest that “Best Buy will be next!” Maybe they will. Both companies give you another reason not to visit their store. Which by the way we can tell you is 100% linked to success. If you have physical assets and fixed costs like Best Buy the whole point is getting more bodies into the store and increasing the propensity to buy just a little tiny bit. That’s all there is to it. Getting philosophical gets you into bankruptcy court. Just ask Circuit City.
The time to stop Amazon was at least 10 years ago. Too late now. On the retail side there is such a big fundamental difference which Target can never even hope to address: selection, availability and price. If I need a garbage can I’m going to Target. I know they have a few and one will be find. But if I want a DVI to VGA cable? What about a pair of 12″ scissors? Clay Shirky’s new book? Flax seed flour? In some cases yes or maybe but they might also be out of stock. So you just pay for prime and buy everything at Amazon. Prices are good and everything arrives at your doorstep in 48 hour or tomorrow if it’s worth $4 to you.
There are concerns of course. What about margins? What’s the right multiple for this? Etc. But arguing that somehow Amazon is going to be dealt a “blow” by Target or Best Buy reflects a basic misunderstanding of the market, consumer experience and the business.
This is the first of a three part look at Amazon that will shift into their cloud services and then into eBooks. The SoundView TechFund (which we advise) is long Amazon stock as a core position.
The biggest reason to own Amazon in the end may be Jeff Bezos. Steve Jobs is gone. Steve Ballmer is clueless and based on what we see at Target, they don’t get it either.