Joe Kennedy is said to have exited the stock market in the late 1920s before the collapse of Wall Street after he got a stock tip from a shoe shine boy, a sure sign market hysteria had taken hold. Today, the same thing could be happening to Amazon.com, Inc. (NASDAQ:AMZN), putting AMZN stock in potential danger of a correction.
Amazon Can Do No Wrong
An Aug. 2 Fortune article about the only industries safe from Amazon’s quest for dominance got me thinking about the level of hysteria surrounding Amazon, a company whose founder (Jeff Bezos) I have written many superlatives about, including what a great leader he is.
Before the start of 2017, I thought Amazon had an excellent chance of hitting $1,000 if the markets cooperated and we didn’t get a significant correction. We didn’t, and sure enough, AMZN stock blue through four digits on May 30, well ahead of schedule.
The sky’s the limit for Amazon. It’s a big reason why I think it’s one of The 10 Best Stocks to Buy for the Next Decade. However, while Amazon’s potential is unreal, it’s not limitless.
Retail Has Been Around a Lot Longer
Fortune’s article, with an assist from Morgan Stanley analyst Brian Nowak, looks at the five attributes certain industries possess that make them Amazon-proof.
It’s as if investors believe Jeff Bezos sits in his office plotting how to dominate the world. That might seem the case given his results, but in reality, what he’s trying to do is provide its 85 million Prime members in the U.S. with as many products and services as he possibly can to make Amazon an indispensable part of their lives.
That’s a far cry from world dominance when you consider that approximately 33 million Prime members are age 39 or younger out of an estimated 160 million Americans in the same age range. In other words, Amazon Prime members account for just 21% of the overall total, which leaves a lot of potential business up for grabs.
We in the media talk as if Amazon has already won the consumer purchasing power of the entire U.S. population. The statistics suggest that’s not remotely close to the truth.
Bezos is all about customer service, yet I would hasten to guess that almost every one of its 85 million Prime members has likely had at least one mediocre encounter while buying something from the company.
Hey, I recommend AMZN stock whenever I write about its business. But it is far from perfect when it comes to customer service — and the media rarely talks about this angle of the story.
AMZN Stock and Retail Reality
In my opinion, the roughly 64,000 retail job cuts announced through the first seven months of 2017 have little to do with Amazon’s dominance and more to do with the fact retailers opened too many brick-and-mortar stores in terrible locations in malls where Sears Holdings Corp (NASDAQ:SHLD) and other poor operators are located, giving consumers plenty of reasons to stay away.
A line from the movie Field of Dreams applies when it comes to the state of retail in 2017:
“If you build it, they will come.”
The “it” isn’t just any brick-and-mortar locations. However, I do believe that when — not if — retail builds a better mousetrap, Americans won’t be able to stay away.
I don’t know what that mousetrap looks like, but I do know that Amazon will have very little to do with the ultimate design.
It’s time to end the hype.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.