Amazon Fail- Yesterday, CNBC reported that Jeff Bezos, in an all-hands meeting earlier this month, said: “Amazon is not too big to fail…In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.” He was responding to an employee asking if the CEO had learned any lessons after Sears and other big retailers recently filed for bankruptcy.
There are a few reasons why Bezos right. As one retail investor said to me, “the nature of all retailers is to eventually go bankrupt.” It’s a cynical point of view but it reflects reality: Retail goes through cycles. Certain kinds of retailers become popular, but then they fail to adapt and their businesses decline and eventually vanish. We see that over and over again. The retailers who can change are the exceptions, not the rule.
But Amazon is now the second-largest retailer in the United States. How is it possible that a thing that big could vanish?
It’s possible that the company could lose touch with its customer, but that seems highly unlikely for Amazon. That’s the one thing it’s known for being hyperfocused on.
There’s a different scenario that’s scarily real for Amazon.
It’s well known that Amazon is not judged on its profitability. If it were, its stock price would be a small fraction of what it is now. Amazon has done an incredible job at many different things, and one of them is getting the financial markets to value the company based on its revenue growth, with the assumption that profitability will come later. Amazon explains away its low profits by saying that it uses what profit it makes to invest in new ideas and experimentation to stay ahead. So far, the market has accepted Amazon’s explanation. People I talk to say that as long as Amazon keeps growing its revenue by 20-25% per year, the market will impute future profitability to the company and the stock price will continue to rise.
For over 100 years before it went bankrupt, Sears had everything for everybody and successfully adapted to what its customers wanted. Amazon has been great about that so far. It hasn’t tried to be better at retailing than people who’ve succeeded at retail for a long time. Instead, it perfected skills that weren’t viewed as retail skills at all. Amazon hammered at logistics and technology—things that previously weren’t core value drivers of retail—to offer better value to consumers. And as it developed resources internally, Amazon smartly turned some of them into businesses, like Amazon Web Services, which today makes more money than the rest of Amazon combined.