Wednesday, August 21, 2013

Amazon's Already Tiny 0.95% Operating Margin Under Attack From Cheaper Brick-and-mortar Stores (BBY; EBAY; WMT)

The stock is down $1.40 at $285.69.
First up, the thing that caught my eye, from Bloomberg:
Amazon Ramps Up $13.9 Billion Warehouse Building Spree
...Margin Squeeze
The spending is crimping Amazon’s margins. The company’s trailing 12-month operating margin of 0.95 percent lumps it in the bottom 3 percent of peers in the Standard & Poor’s 500 Index -- even though it ranks among the top 10 percent of that group by sales, according to data compiled by Bloomberg.

And the margin pressure is rising as the price tag associated with warehouses is set to increase. The company said last month that it’s adding more than 5,000 full-time jobs in 17 U.S. warehouses. Those new hires will join more than 20,000 employees. Amazon said it’s also bringing on 2,000 staff for customer service, including part-time and seasonal workers....
That's operating margin not net margin, yikes.
Now we get a flurry of articles on cheaper competitors.
From FM92 Houston an ABC radio story:
Analysis: Bed Bath & Beyond Beats Amazon In Prices
(NEW YORK) — Bed Bath and Beyond may not tout itself as a bargain retailer, but a price comparison of the home store’s products are showing that the tables have turned for competitor Amazon vs. brick and mortar companies.

In an analysis of 30 products, investment firm BB&T Capital Markets found that prices were 6.5 percent cheaper on average at Bed Bath and Beyond compared to

Since early 2012, BB&T Capital Markets has tracked prices from retailers such as Bed Bath and Beyond, and compared them to the typically cheaper In the beginning, Amazon was 9 percent cheaper on average compared to other retailers, the Wall Street Journal reported. In BB&T’s analysis released this week, Bed Bath and Beyond offered a number of cheaper products. One of the 30 items in the analysis is a Bormioli Rocco Misura carafe, which retails for $4.99 at Bed Bath and Beyond, and was listed as $16.61, according to BB&T....MORE
The Journal's Corporate Intelligence blog goes into more detail:
Problem for Bezos: Mall Becoming Cheaper Than Amazon
See also - Live From the Front Lines of the Amazon Price War

You might think the biggest challenge for Amazon founder Jeff Bezos is figuring out how to make money running a print newspaper, but here is a risk hitting much closer to home: Brick-and-mortar retail stores are becoming cheaper than AmazonAMZN -0.54%.

At least one store, that is. Prices at Bed Bath & BeyondBBBY -0.58% were on average 6.5% less than at Amazon for a basket of 30 items chosen by analysts at BB&TBBT -0.73% for one of their periodic pricing studies comparing the retailers. “We are becoming increasingly concerned Bed Bath & Beyond is sacrificing gross margin in order to drive top-line growth,” BB&T said — that is, increasingly concerned that Bed Bath & Beyond is starting to behave more like Amazon.

One big factor helping Bed Bath & Beyond are the 20% off coupons it regularly sends to its customers. Once you adjust for those, the price gap widens out to 25%....MORE
Even the Daily Mail gets in on the fun:
Main Street fights back: Amazon ISN’T the cheapest option on scores of goods with some retail stores costing up to 25% less