Corporate America Is Suddenly Freaking Out About Amazon

Last night we showed the dramatic impact Amazon has had on the retail sector, where over $6 billion in retail debt has filed for Chapter 11 protection YTD…

… a 110% surge compared to the first half of 2016, and pointed out that there was one recurring name mentioned among 2017’s bankrupt retailers listed in the chart below: brands such as Gymboree, Payless, rue 21 and the Limited all cited Amazon affect as a contributor to their downfall.

It’s not just the direct casualties of Amazon’s encroachment on the retail sector that are having nightmares about Jeff Bezos’ $500 billion juggernaut, however.

As Bloomberg, which picked up on the topic of Amazon references this morning points out, “it’s It isn’t the chaos in Washington or rising worker pay” that is keeping corporate America up at night: “It’s what Amazon.com Inc. is, or could be, doing to their business models.”

With the expanding online behemoth morphing from a retail category killer to a much broader enterprise that now competes with everything from high-end grocers to technology developers, “America has taken notice – and is increasingly concerned about the competition. So much so that Amazon’s overshadowed the Trump administration’s inability to claim a signature legislative achievement after more than six months in office.”

Bloomberg has quantified this by looking at the last 90 days of earnings calls and other corporate events such as investor days, which reveals a trend: “Amazon comes up a lot. It was mentioned a staggering 635 times over that time frame, while President Trump came up just 162 times and wages were discussed 111… It’s become even more pronounced over the past 30 days, with Amazon garnering 165 mentions compared with 32 for Trump and 22 for wages.”

As Bloomberg adds, the trend holds over the past 12 months, which encompasses the period when Trump pulled off his surprise election victory. Yet, Amazon was mentioned 1,800 times on earnings calls over that span, compared with 1,000 for Trump and 406 for wages.

On the surface this would suggest that while Trump may be taking credit for the market’s upside, corporate America is terrified by Amazon (and not Washington politics, and certainly not Trump) as catalyzing the next move lower, if not for the market, then certainly for thousands of mostly-public US corporations.

Some more from Bloomberg: 

Amazon typically comes up in discussions about efforts to expand into new business lines in a shifting retail landscape. For instance, on the McDonald’s Corp. second-quarter earnings call this month, Chief Executive Officer Steve Easterbrook pointed to Amazon’s purchase of the upscale grocery chain Whole Foods Market Inc. as an example of how rapidly the food industry is being transformed. “It just demonstrates how disruptive the business world is and how quickly it moves,” he said.

So quickly, in fact, the the Washington Post itself – a newspaper owned by Amazon CEO Jeff Bezos – issued a front page article asking “Is Amazon Getting Too Big”, i.e. a monopoly. The answer, remarkable, is as close to yes as a WaPo editorial would be allowed to go:

If Amazon is so small and its growth so benign, she asks, then why does the prospect of Amazon’s entry into a market dramatically drive up its own stock price while driving down those of its rivals? Why, she asks, have so many large and successful bricks-and-mortar retailers been unable to make significant inroads into online retailing while so many small retailers feel they have no choice but to use Amazon’s platform to reach their customers?

Antitrust analysis generally assumes dominant firms often exercise their market power by raising prices, but what if Amazon exercises its market power, Khan asks, by squeezing the profit margins of its suppliers? What if its strategy is to keep prices low in markets it dominates to gain entry into new markets that will generate still more sales and profits?

How, she asks, can antitrust regulators analyze the structure of a market, and Amazon’s bargaining power in it, when so many of Amazon’s competitors are also its customers or suppliers? Why did Sears stock rise 19 percent on the day that it announced its Kenmore line of appliances would be sold through Amazon? Why do Walmart, Google, Oracle and UPS all consider Amazon their biggest threat?

And if Amazon is not a monopolist, Khan asks, why are financial markets pricing its stock as if it is going to be?

“Antitrust enforcers should be . . . concerned about the fact that Amazon increasingly controls the infrastructure of online commerce and the ways it is harnessing this dominance to expand and advantage its new business ventures,” Khan wrote in her law review article.

All good questions, and ones which we are confident, will be asked by Congress, the FTC and the administration in the not too distant future.