It may sound like a broken record, but Amazon (AMZN) is destroying retailers of all size.
The less obvious companies being crushed by Amazon are the local clothing retailers who can't afford to ship things for free. Why? Simple: Amazon is undercutting them on price, so free shipping brings the profit margin on an item down to a level where the local shop can't stay open. So they close up shop (and I don't need data on this, it's common sense).
Then there are the traditional department stores, which, as I noted in a recent story, will be forced to shutter hundreds of more locations over the next five years in order to drive scarcity and bring down their cost bases. The problem with that? As those hulking stores disappear from the landscape of America, people forget about the retailer and buy stuff on Amazon, and that hurts business at the stores that have been left open by names such as Macy's (M) and J.C. Penney (JCP).
Amazon is creating a real vicious circle in retail, one that is neatly explained in its surging stock price juxtaposed to the plunging stock prices of several prominent big-name retailers. I continue to believe that Amazon should be a core holding in anyone's portfolio given the fundamental disruption it's causing in web services and in how humans shop. Amazon is causing others to run scared and that is a good position to be in from an Amazon shareholder perspective.
Here are a couple things that caught my attention from the earnings call that underscore my view.
Raw numbers in North America: sales surged 27% year over year, once again blowing every single other retailer out of the water both in terms of sales at their stores and online. The fact Amazon was willing to be happy with a 3.5% operating margin on these sales underscores the company's appetite to put others out of business at all cost. Not too shabby that the company is able to beat profit estimates on such a slim margin in their core market.
International will be the next battleground: In case you missed it, many U.S. retailers have sizable store networks overseas. So far, I don't sense Amazon has disrupted, say, a Gap (GPS) in Japan or China. But I think that disruption is lurking in large part due to the success of Prime overseas and smartphone usage growth. In 2015, Prime subscriptions overseas surged 51%, execs pointed out on Thursday evening's earnings call.
Logistics buildout: what Amazon is quietly building in logistics is not getting enough attention. And the attention it has gotten tends to focus on the impact to UPS (UPS) and FedEx (FDX) rather than a Macy's and Best Buy (BBY). Amazon recently inked an agreement to lease up to 20 Boeing 767s while also buying some trailers. The company wants to control its own supply chain, which should help it lower product costs and get products to consumers even faster. I don't think J.C. Penney will be leasing airplanes anytime soon, meaning Amazon is building a durable competitive advantage that should reap sizable rewards over time.