Amazon (AMZN) has been expanding in terms of its products and its operations, and as a result it is widening its competitive advantages over rivals. Amazon has announced plans to open up a customer service facility in Kentucky. It will open next year and is expected to get at least 500 new jobs ready for the company. This will go alongside the shipping centers that Amazon already has in Kentucky.
Amazon is also looking to expand into new markets. The site is planning on selling fashions from a number of high-end retailers like Michael Kors and Luciano Barbera. This is believed to be a huge development that comes off of the heels of the company buying Zappos.com a few years ago. This encouraged Amazon to get into the high-end fashion business, which should boost gross margins, already at 24%, in the long-run.
This is a move that is being done as a means of challenging luxury retail stores from companies like Saks (SKS) as it wrestles for more market share. This could end up influencing Amazon's profits in a positive manner, because these fashions will be more accessible. Rather than a competitor, Saks could be a likely sales partner as Amazon as the sales conduit.
The company continues to evolve thanks to how it continues to stick with the book sales that the company has been known for ever since the company first started out. The company derives $8 billion of its revenues from written materials. Amazon's lending technology allows Kindle users to borrow books from other Kindle users for a brief period of time without having to pay for them. In addition, Amazon signed an agreement with Bloomsbury, the publishers of J.K. Rowling's Harry Potter series of books, to share the series among Kindle users.
Relationship Risk or Opportunity?
Amazon's Kindle has put it in competition with Apple's (AAPL) iPad, and I expect that competition to increase going forward. I expect Amazon to continue to keep on getting an advantage over Apple as it goes along.
Amazon is already formidable on the customer service front. The competition has been present but Amazon has a slightly better customer service rating. Amazon had a score of 89 out of 100 on ForeSee's newest report in terms of customer satisfaction. Meanwhile, Apple had an 85 while Netflix (NFLX) went to 81. Barnes & Noble (BKS), a close competitor to Amazon in the book industry, was at 86. These ratings all prove that people are going to be more likely to stick with Amazon because they feel comfortable with how the site works and how they are treated when using the site. Customer service can go a long way when it comes to getting people to stay as customers.
In addition it is clear that Amazon is still the barometer for online sales. Amazon continues to be the top-grossing online retailer among companies of all forms, topping several competitors like Netflix and Apple on the same chart. This includes getting $48 billion in online sales in 2011 versus the $7 billion that Apple had or the $3 billion from Netflix.
However, I have concerns about Amazon's competition in the tablet industry. Although Amazon has made a number of popular products in its Kindle line, its R&D and experience with innovating in the hardware space is relatively lacking. Amazon's tablet market share fell from 17% to 4% in the past quarter. This was due to factors like Apple releasing a new version of the iPad and Barnes & Noble adding competition through its Nook, a product that uses many of the same features that the Kindle uses. These include the ability to read books and to manage a variety of different applications with online access through many spots.
Amazon might offer color versions of the original Kindle devices during the second half of 2012. These include original models that are smaller and less powerful but now have the ability to manage color text. This could make these older models capable of managing newspapers, magazines and picture books among many other kinds of items that the original Kindle was not able to support the first time around. Sales will likely increase, particularly if Amazon retains a first-mover advantage over rivals with its launch.
The continued efforts that Amazon is making and its competition against others are proof that the value of Amazon stock should improve over time. I expect the value to increase since Amazon is continuing to get more sales and is continuing to evolve to where the company is adding a little extra in terms of what it wants to do. The evolution of the company is a positive factor that I feel will help to improve the way how the business operates.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
