So, after years of killing the mall, now Amazon (AMZN) is going to save the mall?
Did you see these headlines on TheStreet today?
Those of us who were around for the original Dot-Com Bubble back in the late 1990s remember how Amazon originally was just a book seller. I remember stepping outside from my work as an analyst at a tech incubator company to go to the gym for Tiger Shulman's karate classes and seeing a pick-up truck pulling on a trailer behind it a 10-foot-tall, 20-foot-long sign that said "Amazon.com Books."
Amazon first disrupted the book retailer business long before it became a place to buy tech gadgets, clothes, rubber bouncy balls and garden supplies, and long before it became a place to buy and/or subscribe to music, TV, movies and cloud services. It also was well before Amazon Prime caught on with its free two-day shipping and $3.99 overnight shipping and charging no sales tax (or income tax for that matter).
Let's be clear that I, as a shareholder, think it's great that Amazon is able to provide all these services and sell me all these retail goods at little or no tax consequence. But as a citizen of this country, it makes me furious to no end that Amazon is able to use our roads, courts and other public services without paying much, if anything, for them.
Amazon's ability to avoid sales tax makes it an unlevel playing field against most other retailers and tremendously unfair to small local retailers around the country who do pay sales tax, income tax and other taxes to support our public services and infrastructure. Again, though, as an investor, it's clear that the ability to avoid taxes and ride that unlevel playing field has created some self-fulfilling cycles that benefit Amazon.
Amazon's remarkable growth as a retailer, subsidized or not, destroyed the mall and the mall culture in which I grew up. It was always a big deal to go to the mall when we'd visit bigger towns than mine, and malls were places to shop, hang out, play video games and otherwise rabble rouse. But nobody goes to malls any more, certainly not to hang out or as a destination target when traveling.
So, after spending the first 20 years of its existence killing off the mall business, Amazon now is about to save America's malls. Last night, Sandeep Mathrani, CEO of General Growth Properties, answered an analyst's question on his company's earnings conference call with the statement, "You've got Amazon opening brick-and-mortar bookstores and their goal is to open, as I understand, 300 to 400 bookstores."
I think the term "bookstore" might be a bit misleading here. Amazon Stores likely will be much more than just bookstores. Amazon Stores will help the company continue to develop its logistics for delivery and returns and so on. Amazon is going to try to create stores that sell books but that are more akin to Apple (AAPL) retail stores than they are to the old Barnes & Noble (BKS) bookstore model.
And guess what? Most any mall operator in America is desperate for another potential hit store such as the Apple Store, and that means that Amazon is going to be able to sell the concept of becoming an "anchor tenant" in those very same malls that have long suffered from Amazon's dominance.
Malls are desperate for tenants, especially any kind of an anchor tenant that could help provide a halo effect and foot traffic for the rest of the mall. Being a long, strong buyer in a market full of desperate sellers is a good position to be in. Want to bet that Amazon pays almost nothing for its retail mall spaces?
Amazon has more growth ahead and now every brick-and-mortar retailer in the country has even more to worry about. Will Amazon stores eventually become huge outlets like, say, a Wal-Mart (WMT)? I wonder if someday, maybe in 10 or 20 more years, will Amazon "help save Wal-Mart" by taking physical Wal-Mart stores. Amazon killed the mall and now Amazon is saving the mall? Why not?
I've sent out Trade Alerts over the years when I've shorted Barnes & Nobles at various times, including in this Trade Alert where I explained:
"Barnes & Noble knows it can't be a brick-and-mortar retailer of books and CDs so it's trying desperately to figure out how to become a tech company. Or a toy company, yeah, that's the ticket. The problem is that it's a staid, old brick-and-mortar retailer of books and CDs and it can't escape its own DNA. Fundamentally, our analysis points to a much lower stock over the next year or two as that reality plays out."
Here we are two years later, and that reality has indeed played out. I shorted BKS partly to hedge my own Amazon long position, but also simply because Amazon's book strategies, including eBooks and Kindles, have killed Barnes & Noble. I'm not short BKS right now, though I wish I were because I don't see how it can make it long term.
On the other hand, I've owned Amazon for a very long time, and though I sold quite a few shares back in November when the stock was near $700, I'm not rushing back into them just now. That said, this stock is quite oversold here and is likely to bounce 5% to 10% near term. Feet to fire, that is.