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Hey Amazon: Compete or Be Conquered

Tom Sullivan

July 18, 2017
Tom Sullivan

Late last week, we heard rumblings in Washington, DC that Amazon was getting too big for the public good. Amazon is already dominant in cloud storage, book e-tailing, electronics, and other categories, and will soon be the fifth largest grocer in America with the recent purchase of Whole Foods. But the fear is that retailing, in general, is on notice as Amazon also acquired and has cut a deal with Nike. As we see in the recent wave of store closings (68 by Macys, 72 by Sears and 138 by JC Penney’s), traditional brick and mortar retailers are already under extreme pressure.

Perhaps this will lead to Washington being the warden as it seeks to contain Amazon. And government’s new scrutiny is why some hedge fund managers are starting to short Amazon stock as reported in the Wall Street Journal on Monday.

I am a fan of free markets, competition, and innovators who create new business models and solutions that disrupt industries. I also believe in the role of government to support a fair and healthy ecosystem that rewards innovation and the investment of capital to create new value. The theory is that a healthy, free market economy provides opportunities and investments for innovators who create new value to the benefit of customers who are acting in their own best interests. So how does this theory, and the “Amazon Situation” play out in the scenario of my mind?

Well, I love the value that Amazon has created, and admire the innovative genius and executional prowess of Jeff Bezos to scale a company that has become the disrupter in many categories. I also love to support local merchants and retailers in my local community because I believe that sustainability at the local level is critical if we are going to achieve balance locally and globally.

However, I don’t agree with the government dictating how markets and industries are to be structured, creating winners and losers. I trust the free markets where millions of innovators are seeking and sacrificing to create solutions to better many aspects of our lives while forcing efficiency and good corporate behavior by leading businesses.

Therefore, I propose that, instead of the government putting the squeeze on Amazon, we should challenge innovators, entrepreneurs and investors, to find ways to disrupt Amazon’s business model.

You may think this is a naïve idea.  With Amazon’s 23% and 42% annualized 5-year growth rates in revenue and cash flow, they seem unstoppable.

But, just for fun, I’ll suggest a way how Amazon might be fended off.

Let me suggest a local retail consortium across thousands of communities. The consortium would consist of local retailers and food producers/ preparers, where they build their own best-in-class e-commerce platform to meet the needs of consumers in their local communities. The distribution of goods would take place in highly efficient ways where goods would be brought together in under-utilized warehouses much like a Costco; or maybe, distributed through an Uber-like model. Additionally, the consortium would donate 5% of profits to local community initiatives that consumers would vote on.

Perhaps, value propositions like this one could be combined to beat Amazon at its own game while preserving hundreds of thousands of local jobs in local communities? This feels more like an organic movement to me; one that leverages the power of networks and technology to achieve other human benefits that make us really feel connected.