Forget eBay, It's All About Amazon

Apr.29.14 | About: Amazon.com, Inc. (AMZN)

Summary

Key overview of current retail industry trends, challenges, and shifts.

Why eBay is becoming a dead zone, delivering poor user experience.

Amazon has shifted in high gear providing shareholders with excellent returns while eBay has barely managed to deliver gains.

In the past decade, e-commerce has been a growing trend that has created challenges for brick-and-mortar retail stores that have failed to adapt to the changing market. It has also created a new market for emerging, innovative, web-based companies such as Amazon.com, Inc (NASDAQ:AMZN). Amazon has radically changed the industry to the point that established traditional retailers have announced dramatic changes. For example, after recently reporting poor financial results, RadioShack announced that it would be closing about 20% of its stores, reducing down to 4,000 US locations. RadioShack (NYSE:RSH) has seen its stock wither away from its 1999 high of $80/share down to below $2/share.

The primary disadvantage for companies such as RadioShack is that consumers recognize the discounts of purchasing items online paired with the ease of having the item shipped directly to their home. The industry trend will be to close unproductive locations, move to smaller stores, reduce the number of items available in store, and have high turnover products available in store with the balance available online or through next-day delivery, shifting terms and pricing pressures on to the suppliers of these retailers.

The growing number of internet users, increasingly secure payment methods, rapid delivery options, user comfort, high gasoline prices, and unfavorable weather has led to a greater volume of internet-based transactions. Amazon, the online leader that sells everything from high-definition televisions to toy trains, is still taking market share from retailers like Best Buy Co Inc (NYSE:BBY) as well as other online retailers such as eBay Inc (NASDAQ:EBAY). Amazon's growth strategy and new client acquisition has been well reflected in its share price; since 2006, its shares have increased from the $30-40/share range to the $300-400/share range whereas eBay's share price has barely recorded any gains in the same time period. So why is this? Well, if you are an eBay user, specifically a seller, you know the answer: eBay has become a dead zone and sellers are packing up their online shops and moving on. From the buying side, fees on both eBay and PayPal (which eBay owns) have continuously gone up, causing the average item price to increase. From the selling side of things, eBay has made it extremely difficult for sellers by not only increasing seller fees but also they have stripped sellers of any rights to protect themselves. Buyers on eBay are allowed to defame sellers and the site has become a market that allows the buyers to pillage the sellers. It is not uncommon to read on blogs and in chat rooms about the many people who used to make a living or supplement their income through eBay but, unfortunately, eBay's policies have become increasingly tolerant of deceptive buyers - a seller complaining about unethical conduct by a buyer will fall on deaf ears.

In other company developments, billionaire activist/investor Carl Ichan is pushing eBay to spin off 20% of PayPal in an IPO, which eBay has urged its shareholders to vote against. What would eBay be left with it they spun off PayPal? An online auction platform full of shady characters. Across the board, eBay has made its own life difficult by failing to deliver value to shareholders by unlocking value in PayPal, imposing ever-higher charges and fees to online sellers (the very people who enable eBay), and by supporting deceptive and unethical scammers.

On a positive note, Amazon, the Seattle-based retailer, has racked up 237 million active customers by delivering an excellent consumer experience - the basis of consumer shopping. The company has done an extraordinary job of increasing its capabilities, which now includes orders, warehouses, and the packing and delivery of real goods at an industry-leading price point. These factors have allowed Amazon to capture a significant market share from the retailers mentioned in this article. Furthermore, from a consumer buying and selling experience, Amazon has streamlined the entire process by presenting the best online platform for both sides of the transaction, eliminating variables such as shipping costs, and it has done extremely well with its Kindle line of products. The bottom line is that eBay has struggled to keep its share price afloat while Amazon has delivered exceptionally good returns over the past decade.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.