I received a copy of a letter written by AB Bernstein analyst Mark Shmulik titled ‘Amazon. Bring Back Day One. A sell-sider goes activist.’ In the letter, Shmulik lists where he disagrees with Andy Jassy, and he outlines changes that he’d like Amazon to make.
According to Shmulik:
“We fully support Amazon’s efforts to uncover and capture the next AWS-sized opportunity. But what we’ve seen recently is a company simply pursuing too many ideas, with weaker ideas taking away the oxygen, capital, and most importantly focus from the truly disruptive initiatives that ‘only Amazon can do.'”
Is the criticism fair? Yes. To an extent. Here’s the problem when it comes to ideas and innovation – it is very challenging at times to identify the vital few ideas from the trivial many ideas that are generated inside Amazon.
Amazon spent $84B on shipping costs in 2022 primarily due to the Prime program. Is Prime an example of a good idea or bad idea at Amazon? Prime transformed Amazon but is it worth the costs? Is there a better idea?
Mark disagrees with Amazon continuing to operate in Brazil, Singapore and India. He calls it a case of throwing “good money after bad,” despite the strategic value that those markets may hold. Leaving Brazil and Singapore can easily be done. Leaving India would mean exiting the largest future retail market in the world.
Mark also made interesting comments about Amazon’s grocery business:
[Whole Foods sales are more or less stagnant since the acquisition in 2017 and messaging that “we haven’t yet found conviction around a [mass market] format” begs the question of why so much capital was spent opening 44 Amazon Fresh Stores, and 28 Amazon Go stores, if you’re not sure it will work? Let alone all the tinkering and investment put into the Just-Walk-Out technology.”]
Mark wants Amazon to acquire as many as 500 stores that may have to be divested by Kroger and Albertsons if they merge. Is that a good idea? No. Owning a hodgepodge of 500 stores under different banners will do little to make Amazon better at groceries.
Mark also wants Amazon to get its ‘Day One’ vibe back. Did Amazon intentionally become a Day Two company? No. It happened because the company grew and cultures change the bigger a company becomes. The only way Amazon becomes a Day One company again is by breaking up into several different companies.
The Fortune 500 list was recently announced. Walmart is ranked Number One with $611B in revenue. Amazon was Number Two with $518B in revenue. 60% of Walmart’s revenue was generated by groceries. Groceries are the most strategic aspect of Walmart’s business.
Amazon is in a class by itself. Amazon can’t go back in time and asking Amazon to return to something they once were will do nothing. Amazon is maturing as a company. 2023 is a year of figuring out a few things, especially groceries.
Amazon won’t please everyone but the company will please most.
