Forty years ago, discount retailers like K-Mart got much of the attention from investors, which ironically allowed Wal-Mart (NYSE:WMT) to continue its rapid growth without attracting competition.
Today, we may be witnessing something similar playing out. As Apple (Nasdaq:AAPL) and Google (Nasdaq:GOOG) get the headlines, there doesn’t seem to be as much adulation for Amazon.com (Nasdaq:AMZN). Yet this company’s potential may be larger than these two companies — combined.
Already, Amazon is wreaking havoc on brick-and-mortar retailers. Just look at Borders and Circuit City. There is also more pressure on superstores like Best Buy (NYSE:BBY) and — even Wal-Mart.
Let’s face it — the trend toward e-commerce is inevitable, and the default web destination is Amazon.com. Other operators in the space, like eBay (Nasdaq:EBAY), pale in comparison.
Yet Amazon is still relatively small. Last year, Amazon.com generated about $34 billion in revenue, compared to Wal-Mart’s $422 billion.
Amazon has powerful barriers to entry. One factor is its tremendous global brand. At the same time, the company has an extensive infrastructure, which allows for low-cost delivery and top-notch service.
Of course, Amazon’s traditional rivals have also invested heavily in ecommerce. But they still must deal with the legacy costs of operating large store footprints. It’s a major drag that gives Amazon another key advantage.
The company has also invested aggressively in leveraging its massive digital platform. To this end, there is now a thriving web-hosting business, which powers some of the fastest-growing tech companies.
Another powerful driver should be the launch of Amazon’s tablet offering. While no company has made any material progress against Apple’s iPad, this will likely change. The low-price end of the tablet market appears to be ripe for a company that can offer a compelling product.
And this is what Amazon does best. According to a report from Forrester Research, sales of the company’s tablet could reach as much as 5 million of the devices in the fourth quarter.
The tablet won’t necessarily be a moneymaker (it may actually be sold at a loss). But it will be an effective way for Amazon to create more customer loyalty as well as sell more content. Keep in mind that the company sells more e-books than real ones.
No doubt, Amazon.com does not have the flair of Apple — what company does? But it does not matter. In Wal-Mart’s heyday, it looked kind of hokey and well, boring. And that’s fine.
Amazon.com’s founder and CEO, Jeff Bezos, has a similar awe-shucks personality of Wal-Mart founder Sam Walton. But more importantly, he has the same strategic vision. And that should be very good news for shareholders looking for long-term returns.
Tom Taulli is the author of various books, including “All About Commodities.” He does not own a position in any of the stocks named here.
