Author Topic: Wargaming Amazon  (Read 2573 times)

Online David in MN

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Wargaming Amazon
« on: November 08, 2017, 08:22:10 PM »
There's this really big retailer who doesn't mind selling at a loss. It doesn't mind eating shipping costs, long the dread of catalog sales. It breaks all the rules.

Tonight the Mrs. and I had nachos and Portuguese wine and discussed the weirdness of Amazon. We focused on the acquisition of Whole Foods.

Amazon is going to be number one in some strange areas. Consider...

Amazon will be the market leader in exotic cheese. If that sounds like nothing, look at the retail price of a good Parmesan. Nevermind my favorite cheese Livarot. We're talking about a distribution company that will control $25/lb exotic cheeses. And corner the market.

If cheese doesn't excite you maybe olives will. I love a good Kalamata with kippers on a bagel. Exotic olives are on the rise and now, once again being brought into the Amazon system.

What Amazon is hip to (and most of us aren't) is that these high end niche foods have forever been marked up by middlemen and had tightly controlled distribution. Cheese, olives, caviar, chocolate, olive oil... etc. Will Amazon allow my wife to prove to me that the best part of a Peking duck is the tongue?

Amazon is a global distribution powerhouse. And I don't think they entered food to give us an Andy Warhol. For those who haven't been I'd cut off a finger to have Parisian baguette every morning. Maybe another for almond croissant. People marveled that Amazon went to food. Get ready to have the best distribution in the world try to give you the exotic foods you love. Or the wine is talking.

Offline Mr. Bill

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Re: Wargaming Amazon
« Reply #1 on: November 08, 2017, 09:27:29 PM »
Now I'm hungry.

Offline surfivor

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Re: Wargaming Amazon
« Reply #2 on: November 09, 2017, 04:37:27 AM »

 It seems like amazon may become a kind of monopoly .. Monopolies is one area that I am not convinced libertarians have figured out.

 Wallmart is another type of monopoly. I have shopped there occasionally but I often prefer to shop elsewhere even if it may cost a little more

Offline Smurf Hunter

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Re: Wargaming Amazon
« Reply #3 on: November 09, 2017, 07:00:11 AM »
To a much lesser degree Costco has been trying this for years.  Though their pricing isn't quite so disruptive. 

Online David in MN

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Re: Wargaming Amazon
« Reply #4 on: November 09, 2017, 07:33:33 AM »
To a much lesser degree Costco has been trying this for years.  Though their pricing isn't quite so disruptive.

While I heartily agree (and frequent Costco) it's different. Costco isn't niche. Yes, I can get a good deal on Manchego but they don't carry Tilsit. Costco thinks in rail cars, Amazon thinks in single serving. There's a lot of demand that Costco just can't meet in terms of volume. Stuff that doesn't work in their "pallet footprint" model.

There's a reason I own shares of both. I'm not sure whose model is better.

Offline Smurf Hunter

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Re: Wargaming Amazon
« Reply #5 on: November 09, 2017, 11:28:42 AM »
Costco also has something else going for it.

This is an oversimplification of course, but by and large Costco doesn't sell things that suck. 
There's really not any BAD wine, meats, produce or dairy there.  Perhaps it's not to your taste, but if you contrast with a lower end super market, the bar is higher.
Further with the Kirkland brand.  It's a baseline of quality.  Maybe not luxury, but when I see kirkland trash bags I expect them to perform on par with name brands.

Amazon is starting to do this with "Amazon Choice" line of things.  I'm a fan so far.  I've got alkaline batteries, legal pads, USB cables and even noticed a knock-off of a Pelican pistol case branded by Amazon.
For a long time there has always been the risk of buying a turd product from amazon.  They literally sell everything including Chinese counterfeits of consumer goods in some categories.  Shop for tactical tourniquets, or USB-> Serial adapters for examples.  It's quite difficult for the shopper to distinguish the fake.  Usually reading customer reviews was needed.

Given that AMZN has both the "single serving" as you stated, and they have worked around the quality baseline using their house brand name, they could really take off if they manage it all correctly.

Offline AvenueQ

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Re: Wargaming Amazon
« Reply #6 on: November 10, 2017, 07:53:20 AM »
Amazon is starting to do this with "Amazon Choice" line of things.  I'm a fan so far.  I've got alkaline batteries, legal pads, USB cables and even noticed a knock-off of a Pelican pistol case branded by Amazon.

Amazon cables are the best price you will find anywhere, and the quality is good. When I told my dad about them (he used to work in computers and make his own cables) he was ecstatic. They're so expensive at the big box stores, which is a complete rip-off since they usually contain about $1 worth of materials and are stupid-simple to make.

Offline LvsChant

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Re: Wargaming Amazon
« Reply #7 on: November 10, 2017, 01:13:17 PM »
Walmart is having serious problems, from what I have heard (recent big layoffs of middle management). I'm guessing they are feeling the heat from Amazon's huge presence in the market. I haven't really ordered much in the food line from Amazon other than occasional "care packages" for my college kid and hard-to-find food ingredients. With their amazingly fast shipping (with Prime), it is not really much less convenient that driving down to the local store and impulse shopping...  Another indicator of the weaker falling to the wayside is that our local Sears store closed down (I guess it has been about a year ago). As a kid growing up, Sears was where we went for our school clothes shopping, appliances, tools, etc., etc. Over the years the product lines have not kept up with the quality they once had... their store employees were unhelpful and untrained... in short, they deserved to close down when they couldn't compete in the current market.

On the other side, if you are a seller who sells through the Amazon program (particularly in the fulfilled-by-Amazon sector), Amazon takes a HUGE cut from the selling price. For example, a book that I sell for $20 yields me $11.24 from Amazon. So... from that $11.24, I also had to pay printing costs, royalties, warehouse storage and shipping to Amazon. The sellers on Amazon aren't really making a lot of money on the products they sell through amazon. However, if you want to be able to offer your products with huge visibility, you really have to sell there...

Bottom line: Because of Amazon's innovation, all the rest of the retail industry is being forced into giving better and more varied ways of shopping at their stores if they want to continue to be in the business. I have seen big improvements in Walmart and Penneys' online shopping options over the past few years. This is a great boon to the consumer... and it makes businesses continue to improve.

Online David in MN

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Re: Wargaming Amazon
« Reply #8 on: November 10, 2017, 04:18:56 PM »
Here's another way to look at it. I grill a lot. During the summer I probably make pulled pork at least every other week. I use a lot of chili powder. I used to buy it at Costco but this summer they stopped carrying it. I'm not paying a local grocer for a little vial that will only cover one pork shoulder.

I went to Amazon. Now I get 3 different chili powders I combine to make my rub. A little more expensive than Costco but I get to choose rather the one Costco option.

Amazon lets me connect to producers way too small for Costco who offer niche products at a great price. I think the two will continue to differentiate themselves as neither can do the other's business.

Offline NWPilgrim

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Re: Wargaming Amazon
« Reply #9 on: November 11, 2017, 04:36:43 AM »
Most people have little idea what is going on at Amazon regarding distribution.  It is totally revolutionary.  Much the same way that WalMart revolutionized distribution 20 years ago, Amazon is now doing it again.  There is a lot of innovative thinking and remarkable efficiency in their approach.  The fulfillment centers were the first phase of innovation.  Now the Sortation centers is opening up lots of other opportunities: first having the USPS deliver for them to the doorstep, then providing logistics for brick and mortar retailers to get 2-day delivery.

The one area that disturbs me is their exclusive agreement with the US Postal service to deliver for them 7 days per week.  That is a huge barrier to any other company to not have equal access to a pervasive government service.  Sounds sort of like a monopoly to me...  In fact, I will not be surprised if in a few years Amazon BECOMES the outsourced private postal service.

Offline Smurf Hunter

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Re: Wargaming Amazon
« Reply #10 on: November 11, 2017, 10:35:34 AM »

The one area that disturbs me is their exclusive agreement with the US Postal service to deliver for them 7 days per week.  That is a huge barrier to any other company to not have equal access to a pervasive government service.  Sounds sort of like a monopoly to me...  In fact, I will not be surprised if in a few years Amazon BECOMES the outsourced private postal service.

I don't think it's far fetched to imagine AMZN owning big chunks of the transportation section in the future.  Vertically organized like a paper company that manages the forestry lands for its trees.

Offline iam4liberty

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Re: Wargaming Amazon
« Reply #11 on: November 11, 2017, 12:58:12 PM »
A large portion of Amazon's hustle is to combat Walmart's pickup service.  At our Walmart you can now order online and just drive through a pickup area where they place the order in your car.  People are now getting used to ordering at work and picking up on the way home.  Once self driving cars are active, you will be able to just send your car to pick it up for you.   Amazon has already lost its no local tax advantage and Walmart has neutralized its price advantage.  So losing its convenience advantage would be a big deal.   

Online David in MN

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Re: Wargaming Amazon
« Reply #12 on: November 11, 2017, 04:56:29 PM »
A large portion of Amazon's hustle is to combat Walmart's pickup service.  At our Walmart you can now order online and just drive through a pickup area where they place the order in your car.  People are now getting used to ordering at work and picking up on the way home.  Once self driving cars are active, you will be able to just send your car to pick it up for you.   Amazon has already lost its no local tax advantage and Walmart has neutralized its price advantage.  So losing its convenience advantage would be a big deal.

Yes I believe they are in a trade war. But I see it differently. Walmart might sell a kite but Amazon sells all the kites. This is Walmart's suicide squeeze: compete with Costco on undifferentiated products (beef, peanut oil, foldable tables) and compete with AMZN on the differentiated! Costco doesn't want the differentiated business. Amazon lives for it because its rating system and algorithms passively bring the best products to the top.

They're both losers. Costco is perceived as a premium to Walmart and Walmart can't realistically stock 453 varieties of pellet grill. If I were "King Walmart" I'd push to increase its hardware. With their distribution they could choke the orange and blue stores on price and stay in an industry that needs a physical product "right now".

I'll add another angle... Suppose you are in downtown NYC, Chicago, LA, San Fran, (you get my drift), and a little poor. Your government blocked Walmart, Costco can't afford the footprint, and your cheap rent building doesn't have a doorman to take Amazon packages while you work (unlike here where they routinely leave it on the doorstep). Where do you benefit from this battle? There's another angle to this.

I really am enjoying this thread. Not only are my business sparks flying I really appreciate different insights. I actually believe this is one of those conversations that will make us a lot of money.

Offline NWPilgrim

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Re: Wargaming Amazon
« Reply #13 on: November 12, 2017, 01:57:33 AM »
One area that will get creamed are trucking companies (even more than recently).  With the growing number of sortation centers Amazon will be able to arbitrage shipping rates from anywhere to anywhere, and not just from their fulfillment centers but other major retailers.  Their aim is to become the master of shipping logistics.  Which means cheaper shipping costs for the consumer but also paper thin margins for the competing shippers.  After Amazon brokered the deal with the USPS first-class postage rates actually went down a couple of cents for the first time, and the USPS was practically saved from insolvency (well as much as a quasi govt org can be).  That was short-term, but long term USPS will have to compete more and more with the other shippers.

I think the next big shake up in retail will be when a couple of retailers figure out how to take advantage of Amazon logistics and create a new model of supply chain management that makes it difficult for anyone else to follow on.  Or it is so dramatic that all others have to adopt it as well or die. Next day, same day delivery from Cabelas, Best Buy, Sears? I don't know what that looks like exactly: maybe hooking up with CAD/CAM manufacturers to get made-to-order items in two days?  Connecting your pantry and frig monitors to retailers who auto ship product to keep your shelves stocked?

Offline iam4liberty

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Re: Wargaming Amazon
« Reply #14 on: November 12, 2017, 07:41:43 AM »
Does this thread make anyone else remember this?
https://youtube.com/watch?v=g8LHlJSBkg0

:)

Offline Smurf Hunter

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Re: Wargaming Amazon
« Reply #15 on: November 13, 2017, 10:43:20 AM »
I think the next big shake up in retail will be when a couple of retailers figure out how to take advantage of Amazon logistics and create a new model of supply chain management that makes it difficult for anyone else to follow on.  Or it is so dramatic that all others have to adopt it as well or die. Next day, same day delivery from Cabelas, Best Buy, Sears? I don't know what that looks like exactly: maybe hooking up with CAD/CAM manufacturers to get made-to-order items in two days?  Connecting your pantry and frig monitors to retailers who auto ship product to keep your shelves stocked?

That all brings up the profound question of "what is the product"?

Suppose I need a hose clamp for a dishwasher.  Traditionally that was a 2 week wait.  With Amazon 2-3 days.
If there's some new age 3D printing solution, it could be hours or less.  Here's what gets weird. 

Today there's some factory in China that makes these widgets, sells them to the "brand" (GE, Kitchen Aid, etc.) and it goes into a branded box and gets a part number and instruction sheet.  There's an entire supply chain involved there.

If/when we transition to the equivalent of Kinkos running the CAD/CAM stuff, and I pay for it using an app on my phone, that's a RADICALLY different supply chain.  Someone at Kinkos (or wherever the CAD/CAM is) has machinery, and consumables, and will cover those costs.  Really the only value the "manufacturer" of the OEM part offers is the design (via CAD/CAM) and the rights for Kinkos to print/fabricate it.