Glenn, do you think this is scary?
James,
I do not consider this scary as much as extremely accurate. Amazon's largest problem from the very beginning has been the lack of retailing talent. I have said this so many times here it is likely boring to most including myself.
Retailing is an art. I have always believed there are three major facets that need to be properly addressed to succeed. There are others that are not quite as major but need to be done well. If any of the first three are missed, the retailer will fall behind their competition and eventually fold.
The first and most important aspect to success is customer service. Amazon has handled this facet well and is given reasonably high marks for a pure play retailer. Lately, customer service satisfaction has dropped but I attribute that to employee cut backs, defection due to stock options no longer in the money and moral issue with current employees. If Amazon was successful and was cash flow positive, they likely would have continued executing well here. The drop in customer service is caused by Amazon's demise rather than being the cause of the demise.
The second is proper merchandising which not only includes selection, but also applies to the cost of buying product. This is one of the most difficult arts to master. Determining what will be in demand in advance, takes years of experience and one still one always makes some errors. This facet is simply a comparison to how well one does compared to their competition. It can never be perfect. When Amazon first start, they sold books and literally inventoried almost nothing. Therefore, the customer decided what Amazon would ship and buy. Amazon was a robot going through the motions of just buying the original book database using stock from Baker and Taylor (I believe that was the firm, having the customer choose the book they wanted and Amazon would use one of two possible suppliers to supply the requested book. Amazon made no decisions regarding inventory. They decided how much to discount from list and that was it. The other supplier by the way was/is Ingrahms. The problem here is Amazon was paying 8% more for their books compared to their competitors and there were two shipping charges. One to Amazon and one to the customer on each book. As bad as this sounds, this was the best case scenerio for Amazon due to their lack of book merchandising talent. Bezos seems quite full of himself and wished to conquer the world in a matter of years so branched out into other merchandise categories. This required the carrying of inventory, a decision as to what product lines to carry, what items within those product lines, how much breath and how much depth. There was actual thinking required now and there was never talent hired with the ability to project consumer demand. Amazon poorly managed their inventory since day one in that they often bought the incorrect product, the incorrect depth and breath. To make matters worse, Amazon had no one with the talent to know how the pricing structure was set-up for the products they bought. Amazon always paid more for their merchandise than experienced retailers. That even includes small ma and pop shops.
The third facet is marketing. One can create a good image referred to as a brand by the analysts but one can do so with a poor marketing strategy. Amazon never hired marketing talent either. Amazon painted themselves into a corner based on pricing from square one. No firm has ever succeeded in retailing by just being the lowest price. Wal-Mart even markets using the words low prices rather than the lowest price today and that was due to government intervention that Wal-Mart had false advertising. Wal-Mart has very skilled marketing talent. These people know pricing is important and Wal-Mart is very price competitive. However, Wal-Mart made sure there were always certain items that brought them better margins to compensate for very slim margins in other areas. This is how retailing works. A retailer never needs to have the lowest price on everything. The retailer needs to be price competitive and will then likely be the lowest on some products and not on others. Amazon's next error in marketing was to run a continued free shipping promotion. Amazon in effect trained their customers to expect free shipping on orders over $100 which is not a lot of money. The Amazon customer today would abandon their cart if they found they would have to pay shipping for orders over $100. That customer would continue to check back maybe on a weekly basis to see if free shipping was available again. They are not ever going to pay shipping again unless it is an emergency need. There are not enough of those to maintain adequate sales without the free shipping.
Here are examples of items Amazon apparently has in inventory. I do not know the depth but I suspect these items never sold from day one. My favorites are the gas grills that sell for about $3,000.00.
amazon.com
I bet the above fly out the door in dozens<VVBG> Heavens knows how much Amaozon paid for these.
amazon.com
There is always a lower priced one like this above.
amazon.com
The above is just a small variety of Amazon's inventory from which they are trying to raise cash. My guess is none of this ever sold on-line and they have depth. I doubt these will sell now either and will end up being a merchandise markdown.
The vendors concerns with Amazon are real. Both my stores sell some giftware items and some of the suppliers are divisions of firms from which Amazon buys. It is a known fact in the circle of manufacturing and distributing firms for certain items that Amazon's buying is really bad. Also, it is rumored that there may be some switching to COD only for Amazon in the future.
My opinion remains the same that Bezos is as dump as a rock when it comes to running a firm. The only reason for the remaining existance of Amazon was the huge amount of dollars the equity markets provided. The statement that management at Amazon is excellent is pure "hogwash" in my opinion.
Glenn
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