Even as recently as three years ago, the idea of shopping for furniture on Amazon.com (NASDAQ:AMZN) was awkward, at best. That has changed, and the change is certainly not negative for Amazon stock.
What a difference just a few years can make. A few years ago, consumers preferred to see with their own eyes the furniture they were buying before making such a sizable investment, while shipping heavy and bulky goods was neither cheap nor easy.
But roughly one-fourth of furniture is now purchased online, and AMZN — in typical Amazon fashion — is doing a pretty good job at carving out more than its fair share of that market.
That’s not a reason in and of itself to buy Amazon stock. But, if Cowen analyst John Blackledge’s read on the matter is on-target, it’s certainly not a reason to sell AMZN stock.
Growing Online Market Share, a la Amazon
Cowen estimates that the $68 billion consumers will spend online buying home goods and furniture this year will swell to $135 billion by 2024.
How much of that business will become Amazon’s isn’t clear. Though the company has been anything but shy about touting the fact that it sells furniture — including private-label options — it doesn’t disclose how much business any one category of goods generates in any given year.
But since we’re talking about AMZN, it’s safe to say that it sells a lot of furniture.
One Click Retail reported that the e-commerce giant sold $4 billion of furniture and bedding in 2017, before hitting the accelerator again in 2018. That should, according to the retail-data analytics firms, make AMZN the biggest seller of “home” products in the U.S. One Click Retail followed up in August of last year, suggesting Amazon.com’s “home” category sales grew 16% year-over-year during the first half of 2018.
That’s only a fraction of the total opportunity. But Blackledge’s estimate that the 22% of furniture purchases made online this year will swell to 34% by 2024 is a tacit nod to Amazon’s ever-growing piece of that market.
Let’s Get Phygital
The impact of home and furniture products on the value of Amazon stock isn’t entirely clear. As Business of Home’s Dennis Scully wrote in late-2017, when the online retailer’s furniture ambitions become clear, “Amazon takes aim at furniture retailers, profits be damned.”
There’s more method to AMZN’s madness than it may seem on the surface, however.
Amazon’s strategies aren’t exactly veiled. It’s playing the long game, willing to accept thin profit margins or even outright losses to drive its rivals out of business. Just ask Toys R Us, Radio Shack and others.
Amazon’s deep entry into the home-goods category is meaningful enough to worry Ikea’s Chief Digital Officer Barbara Martin Coppola, prompting the brick-and-mortar retailer to more deeply embrace the idea of using digital and e-commerce tools as a complement to its standing stores. Physical + Digital = Phygital.
Amazon’s online rival, Wayfair (NYSE:W), in the meantime, is moving toward a melding of the two approaches as well. That is, it plans to open its first store in Massachusetts later this year, in an effort to complement its e-commerce business that Amazon has been attacking.
Yet, both of these efforts from Amazon’s direct rivals seem relatively feeble, given Amazon’s deep pockets and willingness to “go big” when it tries something new.
Honing the upcoming project with four pilot stores, AMZN is reportedly planning to launch up to 3000 “Amazon Go” convenience stores. The e-commerce company also intends to establish “dozens” of grocery stores. In the meantime, it’s moving forward with the establishment of more bookstores that aren’t just bookstores. AMZN could open hundreds, of brick-and-mortar stores when all is said and done.
No company is going to “out-Amazon” Amazon.com, online or off. And no company is better at making the most out of consumer data than AMZN is. Home goods and furniture won’t be an exception.
The Bottom Line on Amazon Stock
While AMZN is poised to become the name to beat in the furniture and home goods arena, it’s one area that could still prove incredibly challenging for Amazon if it wants to decidedly up-end its competitors in the space. Furniture is still heavy, and big, and most home-decor items tend to be bulky.
That makes the business tough to handle from a centralized hub unless the only thing the hub does is handle bulky goods, which is Wayfair’s approach. The next-best option is traditional retailing, where there’s an element of self-service, and where buyers and employees can effectively coordinate pickups and deliveries, if need be.
Amazon, for the most part, has sought to eliminate human intervention in the purchasing process, but that shtick may not work as well when it comes to heavy furniture and bulky bedding.
Nevertheless, this is Amazon. It will figure out what it needs to do. For instance, it wasn’t afraid to embrace the idea of using actual people as a means of selling and installing its Ring security systems.
Again, the company’s strengthening furniture business is not a reason by itself to buy Amazon stock. But it’s yet another successful foray into a new consumer market, giving Amazon more data about consumers on a silver platter. That certainly doesn’t hurt the bullish case on Amazon stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
