1 Company Dominating by Making Consumers' Lives Easier
Oct 8th 2013 4:28PM
Updated Oct 8th 2013 4:30PM
Motley Fool co-founder Tom Gardner once said, "Convenience drives relevancy, and the more relevant a company is to its customers' lives, the more likely it is to thrive -- and reward shareholders." Consumers gravitate toward convenience. It's in our nature to avoid unnecessary (and, in some cases, necessary) work and hardship. Companies that help make consumers' lives easier are magnets for consumers, driving sales and cash flow and leading to long-term share-price appreciation and dividends. One such company, Amazon , seeks to bring everything you need to your doorstep.
The online shopping center
Looking to the future, most shopping will be done from the comfort of home, rather than in crowded shopping centers. The allure of convenient online shopping continues to draw customers in. Amazon's revenue has increased 249% over the past five years. Its relentless focus on customer convenience has rewarded shareholders handsomely:
Amazon also has plenty of room for expansion, as e-commerce still comprises only 6% of total U.S. retail sales, though they've skyrocketed from about $50 billion in the third quarter of 2003 to $243 billion today.
Amazon understands this opportunity and continues to invest in distribution centers that enable quicker delivery of products, which could allow for broader delivery of perishable items such as dairy products and frozen food. In addition, Amazon's downloadable products available through the Kindle and Amazon Prime make it that much easier for consumers to buy from the company. If Amazon gets its way, you won't need to leave your house for anything unless your job demands it.
Amazon leaves brick-and-mortar competitors such as electronic retailer Best Buy and book retailer Barnes and Noble in the dust. Best Buy's management currently pursues several initiatives to combat "showrooming" -- i.e., when customers browse brick-and-mortar stores for items they will later purchase online -- such as the "Renew Blue" efficiency program, the Samsung Experience Shops, Windows Stores, and the recently introduced My Best Buy rewards program for online sales. However, they were not enough to push Best Buy's same-store sales into positive territory. The new shops experienced a rough time getting off the ground. Comparable-store sales only improved to a 0.6% decline last quarter versus a 3% decline for the same time last year. On the e-commerce front, Best Buy increased its sales 11%, but that didn't hold a candle to Amazon's 31% increase in similar merchandise during the same period, according to Bloomberg.
Further, Best Buy still doesn't go far enough to please its customers. For example, shoppers in the top tier of the My Best Buy program get "free expedited shipping" after spending $3,500. Meanwhile, Amazon Prime members can get free two-day shipping on countless popular items, access to Amazon's video-streaming service, and more for just $79 per year. Even without the Prime membership, Amazon customers get free "Super Saver" shipping on orders of $25 or more.
When you walk into a Barnes and Noble, you see a large, well-organized bookstore with sections devoted to DVDs, reading, and drinking coffee. However, under the hood, the fundamentals are lousy. Revenue declined an incredible 9% in the company's most recent quarter, with retail and Nook sales slipping 10% and 20%, respectively. College sales represented Barnes and Noble's only bright spot, with sales increasing 2%. Meanwhile, some pundits estimate that Kindle Fire sales tripled over the past two years. Barnes and Noble lacks Amazon's enormous depth and diversity. It remains confined to general merchandise, whereas Amazon sells many other types of items, including food, original video content, and artwork.
Is the writing on the wall?
On the whole, Amazon will maintain its consumer focus, gaining ubiquity, diversity, and depth. More and more consumers will opt for Amazon as its distribution infrastructure expands. You should fully expect Amazon to enter into something else unthinkable, such as lumber and fully assembled cars, while competitors like Best Buy and Barnes & Noble continue to play catch up. In fact, Best Buy may want to spin off its online business as a separate publicly traded business, allowing that unit to concentrate on bringing merchandise to consumers instead of making them come to Best Buy's stores. Amazon's investment in its customers and infrastructure will ultimately reward shareholders over the long term.
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The article 1 Company Dominating by Making Consumers' Lives Easier originally appeared on Fool.com.William Bias has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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