In Amazon's Results Another Caution for Retailers

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The latest Amazon.com Inc. (NASDAQ: AMZN) quarterly results were a grand slam. Its cloud computing division posted extraordinary results. Its North American operations, the core of its business, posted growth and profits. It is another signal to other retailers that Amazon will continue to batter their businesses.

Total revenue rose to $51.0 billion in the quarter that ended March 31, up from $35.7 billion in the same quarter a year ago. Net income was $1.6 billion, compared with $741 million the year before. Amazon Web Services (AWS) posted revenue of $5.4 billion, which is up from $3.7 billion. Operating income for AWS, which is the bottom line used to show division performance, rose to $1.4 billion from $890 million. North American revenue rose to $30.7 billion from $20.1 billion. Operating income was $1.1 billion, up from $596 million.

Amazon’s North America operation has a $120 billion revenue a year run rate. At Walmart Inc. (NYSE: WMT) it is $318 billion. However, it is not growing at a rate of nearly 50%. Walmart’s revenue for the region is running close to flat.

Amazon’s advantage shows up in the stock market. Its shares are up about 25% this year to $1,624 apiece. Walmart’s are down about 10% to $88. And Walmart’s most recent quarter was considered relatively strong.

Amazon, many analysts believe, has built is strength via innovation and its streaming media business, quick delivery operations and consumer electronics products. While this is partially true, Amazon’s primary strength has been its blocking and tackling. Consumers are attracted to its massive inventory of goods and services, the ease of delivery and likely pricing. Consumers “showroom” at major retailers and often buy products they see in stores via Amazon instead due to price.

Walmart to a great extent has tried to buy its way into e-commerce and has done so with an unmatched balance sheet to make additions to its already very large Walmart.com operation, almost certainly the second largest e-commerce operation in the country behind Amazon. The purchases make an important point. Other retailers do not have the M&A capacity to match Walmart. And that is the core of Amazon’s rapidly rising threat to the future of retail. Even the nation’s largest retailer cannot come close to matching Amazon.

The writing has been on the wall for brick-and-mortar retailers for some time. Amazon’s results just made that writing brighter.

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