by Alyssa Oursler | October 15, 2013 12:58 pm
It’s no secret that Amazon (AMZN) has leaped ahead of the competition when it comes to e-commerce — and that Amazon stock has steadily climbed higher in recent years as a result.
So it also should be no surprise that AMZN is jumping into places usually avoided in the world of online shopping … like packaged consumer goods.
AMZN has plans to expand its same and next-day grocery delivery service called Amazon Fresh, for example, despite the fact that groceries and other household staples are notorious for having razor-thin margins. Then again, Amazon stock has soared higher despite the fact that low margins have long been the bread and butter of AMZN.
However, AMZN is working hard to bulk up margins — without raising prices, no less — by making moves like streamlining the AMZN supply chain.
AMZN has moved into a Procter & Gamble (PG) warehouse as part of its new program called Vendor Flex, which aims to lower the cost of moving and storing goods.
As The Wall Street Journal summed it up this morning, Amazon is “is quietly setting up shop inside the warehouses of a number of important suppliers as it works to open up the next big frontier for Internet sales: everyday products like toilet paper, diapers and shampoo.”
Household staples aren’t usually bought online, as they’re thought to be too big or too cheap to be worth the price of shipping. But that means there’s big-time potential for whatever company can figure out just how to make consumers buy even their most basic daily needs with the click of a mouse.
And there’s a good chance that company will be AMZN.
Already, the WSJ says “more efficient distribution and changing consumer habits are unlocking the market.” Not only is AMZN a leader in that efficient distribution with moves like these warehouse deals, but it’s been the one changing consumer habits to a large extent.
Just ask struggling big-box retailers like Barnes & Noble (BKS) and Staples (SPLS), and nervous rivals like Walmart (WMT) and Costco (COST).
The company’s large footprint should help the AMZN foray into the consumer goods market, too. As Jeff Reeves wrote about Amazon Fresh and AMZN stock recently:
“Bake in a group of 10 million superusers with its Amazon Prime premium service — some of whom buy almost everything from AMZN — and you have a platform for massive wallet share.”
Mastering consumer goods and fresh goods could widen the company’s already-huge economic moat … and thus could amplify the already huge gains for Amazon stock.
Already, AMZN boasts a five-year total return of 41% per year vs. a mere 14% for the S&P 500. In 2013 alone, Amazon stock is beating the broader market with 22% gains, despite quarterly losses and several earnings misses.
That’s because investors believe AMZN will continue sprinting ahead in the e-commerce race. Amazon’s vendor deals and consumer goods push suggest they’re probably right.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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