Amazon.com, Inc. (NASDAQ:AMZN) is a company that began by selling books and is now zeroing in on selling … well, everything. It’s a one-company wrecking ball. In fact, AMZN is putting together its own form of creative destruction — one that may be like none that’s ever been seen in the history of business, leaving behind potentially the biggest and mightiest crumbling when the dust settles.
The term “creative destruction” was coined 75 years ago by Australian economist Joseph Schumpeter, and it refers to the destruction of old businesses, products and services by new and improved versions driven by the free market rewards that are central to capitalism.
In fact, Schumpeter called capitalism “the perennial gale of creative destruction,” a perpetual machine that churns out better mouse traps while living in the evolutionary wake of a trail of busted, older mouse trap companies.
Fast forward to Jeff Bezos and Amazon.
The “eureka” moment came a couple weeks ago when Amazon announced that it would buy Whole Foods Market, Inc. (NASDAQ:WFM) for $13.7 billion. WFM naturally jumped and AMZN stock surged higher, but the news also sent shares of pure grocers and other big food retailers spiraling, losing $50 billion in market capitalization in just one day.
Two days later, rumors of a deal to sell Nike Inc (NYSE:NKE) footwear on Amazon’s website sent sports retailers into a freefall. Then apparel retailers like Nordstrom, Inc. (NYSE:JWN), J C Penney Company Inc (NYSE:JCP), Chico’s FAS, Inc. (NYSE:CHS) and Ross Stores, Inc. (NASDAQ:ROST) fell on Amazon’s announcement of a Prime Wardrobe service that will let customers order clothes, try them on at home and then send back what they don’t want at no cost.
I have no doubt the Amazon/Whole Foods deal will go through, and while the grocery has a relatively small portion of market share, I suspect the merger will trigger a wave of deals designed for growth for some and survival for others.
The fact that AMZN stock rallied enough on the day of the announcement to cover the cost of the acquisition underscores the fact that this is great news for its shareholders, and therefore I view the stock as a good potential investment.
My fear here isn’t from a business point of view. It’s from a personal freedom point of view.
The De Facto Big Brother
It’s one thing to talk about and study destruction, but it’s another to watch it happen at dueling speeds.
Right now it feels like watching a slow-motion train wreck, yet it’s happening exponentially faster that most expected just a couple years ago. It’s not the beginning of the end for brick-and-mortar retailers; this is a coup de grace.
I think there is a three-headed tech hydra that is becoming the de facto Big Brother we were warned about a long time ago.
AMZN, Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOGL) will soon know everything about everyone, possibly to the point where they will be able to manipulate our thoughts and habits. They may even usher in a different kind of creative destruction.
As an investor, it’s clear that these companies are only beginning to make the next move in a path of destruction that will change everything. There’s no question it will be good for shareholders.
The question is: At what cost?
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt is currently in the midst of an exciting launch centered around his trademark three-prong investing approach that targets the mega-trends old Wall Street is missing out on. His next-gen investing strategy is delivering enormous profits in stocks and ETFs. Click here for more information on his latest venture.