Amazon often appears to be a contradiction. Their gross revenues and market capitalization have taken off over the last five years, yet profits are meager or absent. How can a company be so lauded, yet not be delivering the profits investors expect from a vibrant, growing company? Kent Stones examines four significant investments Amazon has made since 2004, and how they have set the foundation for Amazon to become the defacto distribution system in the United States. He outlines four potential scenarios retailers will face and the type of companies that will thrive in each.

1. A M A Z O N
I N N O VAT O R O R D E S T R O Y E R ?
( O R B O T H ? )

2. 2003/12/31 2005/3/31 2006/6/30 2007/9/28 2008/12/31 2010/3/31 2011/6/30 2012/9/28 2013/12/30
$0
$40
$80
$120
$160
$200
$240
$280
$320
$360
$400
-2.50%
-1.25%
0%
1.25%
2.50%
3.75%
5.00%
A M A Z O N ’ S P E R F O R M A N C E
MarketCapitalization
NetProfitMargin
Why the sudden decline?
Yet Market Cap kept rising

3. “We seek to offer the Earth's Biggest Selection and to be the
Earth's most customer-centric company, where customers can
find and discover anything they may want to buy online.”

4. Amazon Timeline
A m a z o n
d e b u t s o n
t h e w e b
1995 20132000 2005 2010
A m a z o n g o e s
p u b l i c . H i t s
1 M M c u s t o m e r s
A d d s m u s i c
a n d v i d e o
A d d s t o y s ,
e l e c t ro n i c s ,
t o o l s , h a rd w a re
R e p o r t s f i r s t
n e t p ro f i t
F o c u s o n a d d i n g
c o n t e n t a n d
p ro p e r t i e s
O r i g i n a l
K i n d l e
l a u n c h
A n n o u n c e
K i n d l e F i re
Ta b l e t
P r i m e A i r
a n n o u n c e d
B e g i n i n v e s t i n g i n
t e c h n o l o g y
( A 9 , L a b 1 2 6 )
L a u n c h A m a z o n
F re s h , g ro c e r y
d e l i v e r y s e r v i c e
M a j o r
Wa r e h o u s e
E x p a n s i o n
A m a z o n
P r i m e
Four key investments

5. $0
$40
$80
$120
$160
$200
$240
$280
$320
$360
$400
2003/12/31 2005/3/31 2006/6/30 2007/9/28 2008/12/31 2010/3/31 2011/6/30 2012/9/28 2013/12/30
-2.50%
-1.25%
0%
1.25%
2.50%
3.75%
5.00%
M a j o r
Wa r e h o u s e
E x p a n s i o n
B e g i n i n v e s t i n g i n
t e c h n o l o g y
( A 9 , L a b 1 2 6 )
L a u n c h A m a z o n
F re s h , g ro c e r y
d e l i v e r y s e r v i c e
A m a z o n
P r i m e

6. Software Hardware
Building a foundation

13. Prime

15. Establishing a habit

22. P O W E R E D B Y A C O M P L E X D ATA B A S E W I T H A S I M P L E P H I L O S O P H Y
“Chaotic Storage System”

23. Compare Fulfillment Costs

24. B Y 2 0 1 5 , E S T I M AT E A C C E S S T O 5 0 % O F P O P U L AT I O N
Amazon Fulfillment Centers

25. Automation: 80% of shipments, within 30 minutes of order

26. Technology + Scale + Ecosystem + Storage + Fullfillment = Defacto Distribution System

27. So what does all this mean?

28. R E TA I L E R S S H O U L D B E S C A R E D S H * T L E S S

29. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment

30. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment
• Consumers want to get out
• Less about product selection
• More about entertainment
• Don’t desire to transport goods
• Delivery is reliable and inexpensive
• Retail space is small and hands on

31. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment
Retail as Experience

32. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment
Retail as Experience
• Consumers want to be efficient
• More about product mixes
• More about context
• Don’t desire to transport goods
• Delivery is reliable and inexpensive
• Retail space is larger and themed

33. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment
Retail as Experience
Retail as Showroom

34. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment
Retail as Experience
Retail as Showroom
• Consumers want to be efficient
• All about the product options
• More about efficiency and price
• Have to transport many goods
• Delivery is fragmented/costly
• Retail space is large and stacked

35. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment
Retail as Experience
Retail as ShowroomRetail as Warehouse

36. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment
Retail as Experience
Retail as ShowroomRetail as Warehouse
• Consumers want to get out
• Curated product selection
• More about service
• Have to transport select goods
• Delivery is bundled in price
• Retail space is a blend

37. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment
Retail as ExperienceRetail as Service
Retail as ShowroomRetail as Warehouse

38. Possible Retail Scenarios
Ubiquitous Home Delivery
Selective Home Delivery
High Touch Environment
Low Touch Environment
Retail as ExperienceRetail as Service
Retail as ShowroomRetail as Warehouse

39. D I R E C T O R O F S T R AT E G I C P L A N N I N G
C A L L A H A N C R E E K
Kent Stones
kstones@callahancreek.com
@KentStones
913-948-1210