If Amazon opens real-life stores, Dixons and others could be toast

Dixons Carphone: CEO Sebastian James has warned of Amazon's threat to supermarkets
Dixons Carphone: CEO Sebastian James has warned of Amazon's threat to supermarkets

What is Amazon really good at? Operations? Marketing? asks Andrew Pemberton, director of Furthr.

No. It's the singular ability to raise capital without the expectation of profits.

Indeed, the majority of the world's biggest store's operating income comes from activity outside of retail - specifically Amazon Web Services, which made up 52% of income in 2015.

Amazon plays by a different set of rules to any other retailer, which creates the false impression that pure-play digital ecommerce is viable.

But the expense of customer acquisition and fulfillment mean it simply isn't.

Need proof?  Look at Ocado. The online-only supermarket has been struggling for years.

Ocado reported its first full year profit on February 3rd 2015, after being in business since 2000. Fifteen years of losses.

Still, it made it, so trebles all round!  Unfortunately, the hangover has already arrived.

Amazon's designs on UK supermarkets

On February 29 2016, Amazon announced it would start selling fresh food and groceries in a tie-up with the fourth-largest British supermarket, Morrisons.

Shares in Ocado plummeted by 10% at the news - and they have been heading south ever since.

According to The Economist, Ocado said at the time it hoped that the intervention of the American giant would just increase the market for online groceries as a whole.

Which, as I noted back then, was rather like hoping Putin’s invasion of Crimea will increase the chances of world peace as a whole.

Well, according to the latest rumours from the City, Amazon’s chief Jeff Bezos has just rolled his tanks onto Ocado’s lawn.

But whether it’s Morrisons or Ocado, Amazon clearly has designs on the UK food retail market.

Jeff Bezos can’t wait to get his non-profit-needing hands on a UK grocer, and that can’t be good news for British supermarkets, already squeezed by low cost interlopers Aldi and Lidl.

According to Dixons Carphone boss Sebastian James, UK supermarkets could be royally screwed.

James, who oversees retail brands Dixons PC World and Carphone Warehouse, told the Daily Mail this weekend that while his company has "fought off" Amazon, UK supermarkets could find the might of Amazon impossible to tame.

Looming threat of retail presence

He’s probably right. But maybe James is also getting a bit ahead of himself. He’s been widely lauded for his success in keeping his bricks-and-mortar and online retail group thriving in the face of the online threat.

Except we now know that excepting Amazon, online-only retailers are really no threat at all.

The truth is, the only thing stopping UK supermarkets and, indeed, Dixons suffering the same fate as Comet, which crashed to earth in 2012, is that Amazon does not want to open stores.

In February, the New York Times reported that Sandeep Mathrani, chief executive of the mall operator General Growth Properties, was answering questions from analysts about foot traffic in malls when he blurted, "Amazon’s goal is to open, as I understand, 300 to 400 bookstores."

Don’t get too comfy, Seb. 

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