People can die from any number of ways including accidents, which can kill them quickly, or from diseases which can kill them slowly. In the articles I write, I often state that a company can die. Most companies don’t die quickly, they die slowly; sometimes over a period of 100 years or more.
JC Penney is a company that I have researched for years. In 2018, I wrote this article about JC Penney where I predicted the company only had 18 to 24 months before it had to declare bankruptcy. I also listed several ways that JC Penney could live. Amazon acquiring JCP, for example, would revitalize the company and the brand.
From 2018 to the present, I’ve posted comments in articles and the media that the longer it takes for JC Penney to be acquired, the less likely an acquisition will occur. Instead of being valued for its brand, JCP will be valued for its real estate; especially it’s mall locations as they can easily be converted into fulfillment centers.
According to multiple news reports, Amazon is in talks with Simon Property Group Inc., the biggest mall owner in the U.S., about turning some of its JC Penney and Sears anchor-stores into Amazon fulfillment centers. Simon malls has 63 JC Penney anchor stores and 11 Sears anchor stores. If the reports are true (I believe they are), Amazon will accelerate their presence in as many mall locations as possible. Amazon will also seek out closed retail store locations to supplement their mall strategy by converting the stores to fulfillment centers.
I also believe its plausible that Amazon will eventually acquire the Simon Property Group. More retailers will go out of business and more stores will close in the coming months and years. Amazon would be wise to acquire Simon as it’s certain that Simon will accumulate more commercial properties that Amazon can leverage to their advantage. (How big can Amazon become? When I worked at Amazon, I used to joke that the name of the U.S. should be changed to ‘The United States of Amazon’. Amazon is still an infant in terms of their growth potential).
Why Malls?
Malls make great locations for fulfillment centers as they already have all of the necessary infrastructure like sewer, water, electricity, and zoning for commercial activity. Malls are large (in excess of 600,000 square feet), and they’re close to where consumers live. Malls are also located near major highways for ease of transporting products by tractor/trailers and vans.
Last mile delivery is easier and cheaper as orders can be fulfilled closer to customers.
Turning malls into fulfillment centers is a great idea…for Amazon. For every retailer not named Amazon, it accelerates the beginning of the end. More on this later.
Amazon and Simon Property Group can invest in the best anchor store locations to make them combined retail and grocery stores. Amazon can open Whole Foods Markets or their own branded grocery stores inside malls and/or JCP and Sears anchor store locations. Amazon and Simon can also invest in other JCP store locations to revitalize the brand and open grocery locations.
I don’t see the value of Amazon only opening fulfillment centers to the Simon Property Group. Fulfillment centers will not increase customer traffic inside malls. In fact, fulfillment centers will drive other tenants away. This is why I’m not convinced that an agreement between Amazon and Simon will truly be focused solely on converting anchor stores and other JCP locations into fulfillment centers. Amazon may actually want the real estate for its own retail use.
My advice to Amazon is focus on groceries in the malls and leverage micro-fulfillment technology from AutoStore to fulfill online and curbside pickup orders. I also encourage Amazon to look for ways to introduce their private label furniture, electronics, appliances and other products in stores located in the malls. I also recommend that Amazon acquire JCP’s private label brands and all of JCP’s warehouses.
Could Amazon acquire JCP, the entire company? Yes, it’s possible.
Mall locations that aren’t optimal for stores, like Class C malls, should be converted into fulfillment centers. This is a better strategy for the Simon Property Group as converting failing mall properties into fulfillment centers will generate a steady revenue stream and help retain the value of the investment.
Can JCP Survive?
Without an agreement by Amazon and Simon to invest in the JCP brand and stores, JCP is dead.
I’m sure lawyers and executives from JCP will claim that exiting bankruptcy will make JCP leaner and profitable. I’m sure they’ll use phrases like “We will continue to serve our loyal customers for decades to come as we return JC Penney to profitability.” The words will be hollow. JC Penney cannot survive unless they’re acquired and a concerted effort is made to revitalize the stores, assortment and brand. (You know a retailer is in a world of hurt when there is more value in turning their stores into fulfillment centers vs. keeping the stores open).
It didn’t have to be this way for JC Penney but far too many mistakes have been made over the years. Slowly but surely, JCP has lost relevance. Once a retailer loses relevance they rarely survive.
Former CEO Ron Johnson inflicted a fatal wound on JC Penney when he attempted a massive transformation that was poorly designed and executed. Successive CEOs couldn’t stop the bleeding. JC Penney is dying because of negligence and hubris. Ron Johnson claims that he failed at JC Penney because it wasn’t “a good fit.” False. Ron Johnson failed at JC Penney because of Ron Johnson.
Why Retailers Slept
Amazon should never had succeeded as a company. Founded on July 5, 1994, by Jeff Bezos, a man with no prior retail experience and who looked more like Don Knotts than Don Juan. Nothing about Bezos stood out. This 1999 interview refers to Bezos as a nerd. (In fairness to Jeff, he has transformed his body through weight training and better nutrition over the last few years).
However, here is what everyone missed about Bezos – he wasn’t inspired by a paycheck, he was inspired by an idea. Bezos wasn’t on a mission to earn money, he was on a mission to reimagine retail and business Big difference.
Slowly but surely, Amazon gained traction and more importantly, Amazon attracted attention from Wall Street, retail analysts and the media.
Retailers, however, reacted to Amazon this way – they yawned, they slept.
At a time when Amazon was growing and creating a new retail model, retail executives convinced themselves to maintain the status quo. Executives didn’t make the argument to their boards that they too should invest in e-commerce, they made the argument that they needed more stores.
Amazon succeeded because retail executives did nothing to deter Amazon’s growth. Amazon succeeded because retail executives lacked the same vision and curiosity as Jeff Bezos.
Not challenging Amazon early in it’s history as a company remains one of the biggest regrets at Walmart, Google and Microsoft. Don’t believe me? Call Doug McMillon, the CEO of Walmart and ask him this question: Do you think Walmart should have acquired Amazon in 1999 or 2000? The only logical answer is yes. (I’ve spoken with executives from Google and Microsoft and each stated that not acquiring Amazon was a “big mistake” for their companies).
Why didn’t Walmart acquire Amazon?
Because they didn’t believe Amazon would ever be a threat. (I believe history is going to repeat itself at Walmart. In 2016, I made the argument to Walmart that instead of acquiring Jet.Com, they should acquire a little Canadian company called Shopify. Crickets. Walmart acquired Jet.Com but ask yourself this question: Do you believe Walmart wishes they would have acquired Shopify instead? Again, I believe the only logical answer is yes).
In many ways, the current battle taking place in retail reminds me of the period from 1936 to 1938 when England, although confronted with a growing threat from Hitler and Nazi Germany, committed a series of poor decisions that significantly limited their ability to defend England against Germany’s aggression.
Former President John F. Kennedy wrote an excellent book on the topic in 1940 while he attended Harvard. Titled Why England Slept, Kennedy outlined in great detail the mistakes made by England after WWI and during the leadup to war with Germany. Although the British government had ample evidence that Germany was significantly building up their military and introducing new weapons of war, England maintained the status quo.
Many people in England believed that the best way to combat Germany was to leverage England’s natural defenses, primarily the English Channel, which no army had crossed since 1066. The fact that Germany could attack by other means was overlooked.
History is full of examples of countries and businesses that failed to make a big move when confronted by an aggressor or a new entrant. As I stated earlier, Amazon succeeded because no retailer challenged them when they were a young and vulnerable company.
When Amazon started to grow, retail executives believed their best strategy against Amazon was to leverage their natural defenses, their stores. (Walmart and other retailers continue to believe that their stores are their best defense against Amazon. This is false. I believe stores are today’s Maginot Line). Don’t get me wrong, I am not against retail stores but I don’t believe stores offer anywhere near the competitive advantage that some CEOs claim.
This quote sums up my feelings about how stores can be viewed as being more of a deterrent than they really are:
“Time treats few things more cruelly than the futuristic fantasies of past generations, particularly when they are actually realized in concrete and steel. Hindsight makes it abundantly clear that the Maginot Line was a foolish misdirection of energy when it was conceived, a dangerous distraction of time and money when it was built, and a pitiful irrelevance when the German invasion did come in 1940. Most glaringly, it concentrated on the Rhineland and left France’s 400-kilometer border with Belgium unfortified.”
Instead of entering into an arms race with retailers to build stores, Amazon chose a strategy that nullifies any advantage stores offer by focusing their efforts to bypass competing with stores altogether through e-commerce. In the case of Germany, instead of crossing the English Channel, they bombed England from the air and used large missiles to wreak havoc. England’s natural barrier, the English Channel, did little to protect the country from Germany’s military might.
Amazon continues to defeat retailers by embracing the will of the People who desire choice, low prices and most of all, speed. Amazon introduced a new business model to meet customer demand and in the process, gave themselves a competitive advantage. (Walmart and other retailers continue to try and copy Amazon with little to show for their efforts).
Retail has been changing before the eyes of every retail executive working since 1994. What most executives fail to understand is that Amazon doesn’t react to the changes taking place in retail for this reason – Amazon is the impetus for the change. Amazon is shaping consumer behavior. Amazon knows that the best way to thrive as a company is by shaping their own future.
Turning stores into fulfillment centers inside malls is Amazon’s way of shaping consumer behavior so that speed alone isn’t enough. The next big thing in retail is precision. Instead of delivering to places, Amazon will deliver to people regardless of where they are. Eating lunch and want something delivered? No problem. Amazon will deliver it in 30 minutes. Need medication for a sick child? No worries. The medication will be delivered in 15 minutes.
Amazon is invading the USA with a network of fulfillment centers because in 1994, a skinny nerd named Jeff Bezos saw something no one else did. Bezos saw that the future of retail (and business) wasn’t fixed store locations but a massive ecosystem powered by logistics, capable of meeting the needs of any consumer that wants any product in minutes, not days or weeks. (The only exception to the rule at the moment are grocery stores. Because of the intricacies of selling groceries, stores matter. A lot. However, I believe the future of grocery retail is no stores at all).
There has never been a business executive and founder as capable and influential as Jeff Bezos. (I am often asked if Jeff Bezos will run for President. I don’t think he will. However, I won’t be surprised if Doug McMillon runs for the Senate or President in 2024).
Amazon’s Gordian Knot
By 2025, it’s game over for the majority of retailers.
Amazon’s laser-like focus on speed and precision through logistics will allow Amazon to apply the AWS model to supply chain management and logistics. In other words, Amazon will move beyond fulfilling its own orders and instead, will sell their logistics prowess to manage entire supply chains for major corporations, including retailers.
Amazon is fast becoming a megalodon; an entity without a predator. Stated another way, few companies are capable of competing against Amazon and the number will continue to dwindle. Many companies will have no choice but to turn to Amazon to manage their logistics and fulfillment as they will be incapable of competing against Amazon. (Amazon plays an infinite game where the goal is to outlast competitors and this gives Amazon an advantage).
I anticipate that Amazon will accelerate making acquisitions with a focus on scaling Amazon Prime Air. It’s plausible that Amazon will acquire American Airlines, Virgin Atlantic, Delta or United Airlines. Amazon can use the aircraft to transport cargo while passenger travel remains low. Amazon can easily modernize the fleet of any airline they acquire using a series of financial incentives that plane manufacturers will offer. Amazon can run the passenger airline as a separate company.
It’s also plausible that Amazon could make a Big Move and acquire Target, Macy’s or Kohl’s. I rank Target at the top of the list. Target has done a fabulous job of being strategic with the number of stores that they operate (1,868). Target has also done an excellent job of fulfilling from their stores. (The acquisition of Shipt helped Target but Target is making a mistake by not making Daphne Carmeli the CEO of Shipt).
Acquiring Target would allow Amazon to open Whole Foods Markets and/or Amazon-branded grocery stores inside each Target store. It will also allow Amazon to introduce their private label products including their luxury brands into Target’s assortment.
If Amazon chooses to acquire Kohl’s, they can open Amazon Go stores inside each Kohl’s. Amazon can also look for available real estate to open its full-size Amazon Go Grocery supermarkets. I’ve recommended to Koh’s for two-years to pursue a larger partnership with Amazon with a focus on groceries. (I’ve also written articles and made the argument that ALDI or Lidl should partner with Kohl’s to open their stores inside each Kohl’s).
Stores can be strategic for Amazon as part of their overall ecosystem approach. Acquiring a proven retailer like Target would be a strategic move but is not mandatory for Amazon to grow.
Amazon’s strategy of conquering retail through logistics and fulfillment centers is also their way of creating a natural barrier. I am convinced that Amazon is building their version of the Gordian Knot, a logistics network so entangled and vital to local economies that to try and detangle them by declaring Amazon a monopoly would generate more harm than good to the economy.
Amazon is creating a logistics network and analytical machine so perfect that they will no longer have to embrace the will of the People because Amazon is shaping and influencing what people desire.
Can any one company beat Amazon? No. The lack of Thinking Big at Walmart, Google, Facebook and other companies is staggering. Amazon is the perfect storm yet far too many executives continue to do nothing more than open their umbrellas and exclaim “It’s starting to rain harder.”
The only way Amazon can be beaten is if their biggest competitors work behind the scenes to create a collaborative retail and logistics model better than what Amazon offers. Will that happen? Highly unlikely. Far too many executives at the largest tech, logistics and retail companies continue to sleep.
