Amazon and Walmart. Retail Post-mortem

Amazon and Walmart are eating the retail world. This is the post mortem.
(Definition: when relevant, I’ll be using the financial abbreviation of GMV. GMV is a measure of goods that are sold through an eCommerce ecosystem even if they are someone elses (i.e. 3rd party sellers)
At its IPO, Amazon was a book seller that did $16m in sales, had 256 employees and was bleeding cash, far away from being profitable
At that same time, Walmart, our largest retailer, had sales of US$105 Billion, 728,000 employees and profitable.
American Retail 1997 vs 2017

Revenues for the top 10 retailers and Amazon have grown from $304 Billion in 1997 to  $1.323 Trillion (Including Estimated GMV) in 2017.
Earnings for the group have nearly tripled from $7.6 Billion in 1997 to $23.4 Billion today.
Amazon and Walmart

In the last 20 years, Amazon has produced $13.4 Billion in earnings and sports a valuation of P/E20 42.69 those earnings, compared to Walmart’s $235.9 Billion in earnings, valuing WMT at a P/E20 of 1.32.
This is not a Current Price to earnings ratio of 42.69, which would be rich for any retailer.  I’m diagramming a P/E20, the ratio of a company’s Price (Current Market Cap) divided by the last 20 years of earnings.
The schedule below compares the American Retail Landscape, per US Census Data, from 1997 to 2016 (2017 is not yet available)

Amazon and Walmart today handle roughly 42.4% of all retail through their ecosystems, up from Walmart’s share (Amazon didn’t exist) of 10.4% 20 years ago.
The “Top 10” Retailers (Plus Amazon) in America control about twice as much of the market (59%) as they did 20 years ago.
Amazon was able to accomplish this massive assault on market share at virtually no cost.  There was no meaningful requirement to supply shareholders with earnings or dividends, they clamored for potential stock price appreciation
Amazon was able to expand their business with virtually free equity and debt financing.
In 2010 Amazon’s total long term Debt was only $1.5 Billion (8% of a $18.7 Billion Balance Sheet)
In the last few years they’ve added leverage (Long Term Debt) by $46 Billion (35% of the $131 Billion Balance Sheet), with another $118 Billion of off balance sheet commitments (leases, etc)
Doing more with less is the essence of productivity.  So let’s see how the “Top 10” did when compared to what we’d expect had they grown at the rate of the US Economy and Markets.

When we look at what the “Top 10” actually did (3rd set of columns), compared to what we would have expected them to do (2nd set of columns) we see that they’ve exceeded expectations.  Revenue was 27% higher ($871.8B vs. $683.4B), Income was 19% greater ($20.4B vs. $17.1B) and the value of these businesses was 10% greater ($508.6B vs. $461.3B)

When we look at the “Top 10” PLUS Amazon (4th Column) we see that this group of businesses becomes an absolute economic juggernaut compared to the rest of the economy.
As a group, Revenue (Including GMV) has nearly doubled our expectations ($1,328.B vs. $683.4B).  The Market Cap for these businesses has also more than doubled from what we would have expected.  ($1,080.6B vs. $461.3B)
Oddly, earnings have only increased by 36% over what we would have expected.
Over the last twenty years while the “Top 10” and Amazon have flourished.  The Federal Reserve Bank of St Louis graphic shows total retail employment indexed to January of 1997 = 100.

The numbers are dismal.
“Total Retail” (Red Line) increased by 11% in the last 20 years.
“Department Store” (green line) employees have actually declined 22% over the same period.
The entire industry is doing a “Shitload more with much, much less.”
Neither Amazon nor Walmart disclose GMV. reminder, GMV is a measure of goods that are sold through an eCommerce ecosystem even if they are someone elses (i.e. 3rd party sellers)
Amazon and Walmart control significantly more of the retail footprint in this country than we think.
Why don’t they disclose the GMV figures?
Rather than actual numbers, we get ambiguous commentary, yet we have no idea what Walmart’s and Amazon’s third party sales actually are.  
Why can’t or won’t Amazon and Walmart tell us how much third party, plastic, Chinese junk they are selling on their sites? 

A picto history: The mall before

That same mall after
The Amazon and Walmart Bombs. 
Walmart’s bomb is dropped on a small town, wiping out every retailer within 20 miles of ground zero
Amazon’s bomb is delivering third party GMV to your door sales tax exempt (for “free” with Amazon Prime)
Once a “Walmart Bomb“ is dropped on a community, if (often the case) the store has caused even more destruction to a local economy than they had initially forecast, when they determine they can’t meet revenue and profit targets, they simply close the store and walk away, leaving the local community to deal with the wreckage

Irony alert: The failed stores were the subject of an incredible competition between regional communities, in a local government spending-spree-arms-race offering tax abatement, free land, additional infrastructure and financing assistance to build the stores, all in the name of landing the fools gold.

The political thinking was that people would come from miles around to work at and shop at Walmart, bringing jobs and tax revenue into the winning community.

Alas, the profits that used to stay in their communities are now going to Bentonville and Beijing. On the other hand, if Walmart didn’t kill the local brick & mortar retailer, Amazon eventually would.  So the Walmart-bomb is a bit like retailer euthanasia for those local businesses that just didn’t stand a chance.

Irony alert: That mall, featured in the before and after, has been chosen as the future home of an “Amazon Distribution Center“.
The community gave Amazon a 15 year, 75% property tax abatement and financed a whole smorgasbord of additional infrastructure improvements, all in exchange for a nebulous promise that Amazon would at some point employ 2,000 people, presumably lower skilled folks running between conveyor belts where it’s apparently too dangerous or onerous for expensive robots to go.
Here are the Twelve worst big cities, defined, by me, as places with the greatest unemployment, highest crime rates, and most substantial economic malaise. All have Walmart as an anchor tenant.

This list is deliberately incomplete as it does not include the any California small towns because there are just so many of them that they would dominate the list.

The Twelve (12) Worst “Big” Cities in America
1.) Camden, NJ – 9 Walmarts
2.) Detroit, MI – 15 Walmarts
3.) Cleveland, OH –  3 Walmarts
4.) New Haven, CT – 1 Walmart
5.) Memphis, TN – 7 Walmarts
6.) Stockton, CA – 2 Walmarts
7.) Birmingham, AL – 13 Walmarts
8.) New Orleans, LA – 8 Walmarts
9.) Oakland, CA – 2 Walmarts
10.) Modesto, CA – 3 Walmarts
11.) Reno, NV – 6 Walmarts
12.) St Louis, MO – 4 Walmarts
The end?

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