By Vern Gowdie – The Gowdie Letter (Australia) –
This simple comparison has deflation written all over it.
Traditional retail is under serious threat. People are gravitating towards Amazon for one primary reason…to buy more for less.
Amazon is high-volume and low-margin, and it doesn’t have the property overheads that brick-and-mortar retailers do.
But life is never one-dimensional.
There are other factors at play with this chart. Factors that could cost yield-starved investors serious money.
The relentless pressure on retail margins has forced Warren Buffett to act. This headline, and the extract that follows, is from Fortune magazine on 16 February 2017:
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‘Warren Buffett believes in America’s future but seems more doubtful about that of Walmart and other traditional retailers.
‘As recently as last summer, Buffett’s holdings in Walmart were worth $3 billion, and are now down to less than $100 million. The Oracle of Omaha first invested in the company in 2005.
‘Buffett himself seemed to take a dimmer view of traditional retail’s prospects at Berkshire’s annual meeting last year when he said of Amazon, “It is a big, big force and it has already disrupted plenty of people and it will disrupt more,” adding that many companies “have not figured the way to either participate in it, or to counter it.”’
In the face of the Amazon onslaught, Walmart shares have gone nowhere for the past decade. Buffett’s decision appears to be a concession that the trend to cannibalise retail margins is here for the long term.
And with good reason.