Bloomberg Markets AM with Pimm Fox and Lisa Abramowicz:
David Garrity, CEO of GVA Research and columnist at Investopedia, on the tech sector, outlook for Amazon and how it could exploit its predatory pricing position.
Listen to the full interview here
AMZN Feeds Bottomless Appetite For Consumer Data With WFMI Acquisition, Alexa is Listening:
Last week’s announcement that AMZN will acquire WFMI for $13.4bn carries implications for multiple sectors of the economy, not just high-end grocery retailing. At heart, with the WFMI transaction, AMZN is moving forward in its experimentation with on-premises consumer interaction, an initiative the company had undertaken with its own Amazon Go format in Seattle. While it remains to be seen whether AMZN decides to opt fully for increased automation in retail with the elimination of cashiers and other human workers, AMZN does pick up increased distribution points located near and catering to high-income consumers and, more importantly, captures greater depth of data on consumer behavior on wider range of product categories. Most likely, the WFMI acquisition will be integrated with AMZN Alexa such that consumers’ conversations at home will be analyzed to determine purchase intent prior to the consumer becoming consciously aware of such. While there are clearly significant privacy concerns raised in just such a possibility (see: https://www.g2crowd.com/blog/internet-of-things/safe-tell-alexa-everything/?utm_source=email&utm_medium=newsletter&utm_campaign=junesend&cn=bWVzc2FnZQ%3D%3D), it is highly likely that consumers will trade away privacy for convenience, something that AMZN has exploited in its success to date. Consumer preference for convenience has also played out in other areas benefitting AMZN as the company has introduced its “own brand” products where prices will fluctuate with increased frequency often selling for more than other vendors’ branded products (see: http://www.morningstar.com/news/dow-jones/TDJNDN_20170326515/the-highspeed-trading-behind-your-amazon-purchase.html). AMZN CEO Jeff Bezos’ maxim that a competitor’s profit margin is his opportunity also translates into consumers’ wallets when it comes to putting convenience over pricing. Yield management has migrated from the airline industry to online retail and with Alexa has landed in your home.
Retail Introduction Technology Likely To Accelerate Off Merger, Limit CPI Inflation:
The broader implications of AMZN/WFMI transaction will be further spreading of the deflationary pressure AMZN has brought to a number of industry sectors as it deploys predatory pricing to gain market share and eliminate long-term competition. While the price reductions have served to keep regulators from looking more closely into AMZN’s actions (see: https://www.nytimes.com/2017/06/19/business/dealbook/amazon-conglomerate.html?smprod=nytcore-iphone&smid=nytcore-iphone-share), the question remains as to how AMZN may exploit its position over the long run as it expands its operations into a wider range of sectors and activities. With its leadership position in providing web hosting for broader ranges of the economy, AMZN can be viewed as occupying the critical intermediary position that the railroads held in the 19th century and as such can exercise toll-taking power in extracting economic rent (see: https://www.nytimes.com/2017/06/21/opinion/amazon-whole-foods-jeff-bezos.html). Where is the modern version of the Texas Railroad Commission when it’s needed? Meanwhile, central banks are slow in understanding the impact accelerated technology deployment and subsequent consumer acceptance have had on the operation of the broader economy wherein historical economic relationships such as the trade-off between employment levels and price inflation are being altered (see: https://www.bloomberg.com/news/articles/2017-06-20/amazon-has-at-least-one-fed-official-rethinking-inflation-theory). Time to wake up and smell the coffee because with AMZN on the prowl it is a jungle out there.