The Bad News and the Really Bad News for Retailers Fighting Amazon.com
by: Miriam Gottfried
Mar 06, 2017
Click here to view the full article on WSJ.com
by: Miriam Gottfried
Mar 06, 2017
Click here to view the full article on WSJ.com
TOPICS: Competition, Strategy
SUMMARY: Amazon.com's ability to sustain its retail growth rate will determine the fate of the rest of the retail industry.
CLASSROOM APPLICATION: Students can examine the effect of Amazon's ascendance on the strategies and profits of other retailers. The article also alludes to the tradeoff between price and sales, which is due negatively sloped demand curves.
QUESTIONS:
1. (Advanced) "Defending their turf against Amazon already comes at a steep cost. Wal-Mart managed to return to minimal sales growth in fiscal 2016, but operating margins fell to 4.7% from 5% the previous year. Conversely, Target Corp.'s operating margin climbed to 7.2%, but its sales tumbled." Does this statement imply a tradeoff between price and sales? If so, what is the source of the tradeoff?
2. (Introductory) Describe Amazon's growth rate of revenues. Are sales increasing at an increasing rate? Will the company's sales always increase at this rate?
3. (Advanced) What is the effect of the willingness of Amazon's investors to tolerate low profit margins on retailers' distribution strategies?
1. (Advanced) "Defending their turf against Amazon already comes at a steep cost. Wal-Mart managed to return to minimal sales growth in fiscal 2016, but operating margins fell to 4.7% from 5% the previous year. Conversely, Target Corp.'s operating margin climbed to 7.2%, but its sales tumbled." Does this statement imply a tradeoff between price and sales? If so, what is the source of the tradeoff?
2. (Introductory) Describe Amazon's growth rate of revenues. Are sales increasing at an increasing rate? Will the company's sales always increase at this rate?
3. (Advanced) What is the effect of the willingness of Amazon's investors to tolerate low profit margins on retailers' distribution strategies?
Reviewed By: James Dearden, Lehigh University
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