Overplaying its hand
Amazon's (NASDAQ:AMZN) rise has been prolific. The company did the same thing that every other successful business has done in the past. It just did it online. It made the consumer's life easier, and sometimes cheaper. By essentially being a "middle man" brokering the sale of goods between producers and consumers (much like Wal-Mart (NYSE:WMT)), Amazon has increased our ability to "shop around." In five minutes you can look through a whole host of golf shirts, televisions, etc. It also gives access to products you might not ordinarily see.
A small novelty brand that makes customizable t-shirts in Oregon might not have found a lot of customers in, say, Maine prior to the advent of online shopping. Now, they can get their products on Amazon and gain exposure to anyone with a computer. Cheap knock-off brands can get a little slice of Nike's (NYSE:NKE) pie because you see the pricing comparisons right on screen. The company also tapped into the simple fact that people are lazy and don't want to go to the store if they don't have to. The simplicity of the concept is genius.
Recently, there has been much more chatter about the monopolistic potential of Amazon's format. It has bothered me for years. I buy very little from Amazon because it hurts jobs. The company has been making acquisitions/corporate moves that are scaring competitors. Its bid for Whole Foods (NASDAQ:WFM) has lawmakers questioning whether the company's rising dominance is healthy for the consumer. House Rep. David Cicilline has requested a hearing on the merger and the economic consequences for the grocer industry. This seems to be the first of many discussions on Amazon's antitrust potential.
Prices vs. Jobs
The case is there for federal moves on Amazon. When you look at what it has done to apparel stores in such a short period of time, it can absolutely be argued that the company's dealings could get out of control if acquisitions are allowed. There is a question pervading in economics right now that must be addressed. Which is more important, achieving the lowest prices possible for consumers or ensuring industries can provide ample employment for the labor force? Currently, the emphasis is not on a balanced front, as corporations like Amazon threaten multiple employers in multiple industries. I love finding a good deal, but if you cut too many people out of the game, how will everyone be able to afford to buy anything?
And no, Amazon doesn't replace the jobs it destroys. To sell $100 worth of items, the company needs half the labor force of Macy's (NYSE:M). That sounds great if you own Amazon, but it wrecks our labor markets. This narrative is something that the federal government can definitely employ in regard to the company's tendencies to cut out employment in favor of automated efficiencies.
Universal income is a farce dreamed up by billionaires who want their businesses fully automated. It will never happen, nor should it. Therefore, good paying jobs are a necessity. Henry Ford understood the importance of workers making a living. He increased wages multiple times during his time at Ford in order to ensure that people could afford to buy his cars. It's simple, but sound, logic. This is why Amazon's model will not hold up.
There comes a point where the stock price cannot justify the job losses. Amazon's approach is more damaging than Wal-Mart's 10 years ago.
The move on Whole Foods was a foolish one from Jeff Bezos. The $13 billion bid announced to everyone its plans for conquest. It confirmed that Amazon wants to control everything we buy. It also expands the company's model to a new level. The acquisition would thrust Amazon into the brick-and-mortar business, something that until recently it hasn't had much involvement with.
The conversation on Amazon needs to be monitored very closely. A federal case for antitrust moves against Amazon would mean devastating effects on its $1,000 share price. The company's valuation is extremely high with a P/E of 187. The market has factored in a lot in terms of future gains. Any impediment of those future values could send the stock crashing down. Even Goldman Sachs is beginning to question whether regulatory risks have been ignored.
In the first half of 2017 alone, retailers have announced 60,000 job cuts. If that isn't enough put a target on Amazon's head, I don't know what is.
Disclosure: I/we 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.