Amazon.com Inc. (NASDAQ: AMZN) came out swinging this month after experiencing a precipitous decline in its stock price since the start of 2016.
Caught up with the broader market sell-off, Amazon has shed nearly 25% of its value over the last six weeks — yet while the market seems to be screaming its lungs out that the sky is falling, the company has made it perfectly clear it doesn’t plan on slowing down anytime soon.
In the last two weeks there have been a few incredibly important developments for Amazon, some of which could have lasting rippling effects across a number of industries.
At the very least, these recent developments are enough to raise the question of whether or not Amazon is a bargain after a 25% sell-off (I think it is).
To start, Amazon recently opened its first-ever brick-and-mortar store, which will serve as a pick-up and drop-off location for students at Purdue University. This milestone was accompanied by an apparent slip-up during a General Growth Properties (NYSE: GGP) earnings call, where CEO Sandeep Mathrani leaked that the online retail giant plans to open 300 to 400 physical stores over the next several months.
Although Amazon refused to comment on the remark and Mathrani was quickly forced to retract his statement, the writing remains on the wall: Amazon will soon break into physical retail — even if the company is trying to keep that under wraps for the time being.
By opening physical stores, Amazon would be able to reduce shipping costs, integrate online and offline shopping experiences, increase its brand image, and leverage its incredibly strong logistics and big-data capabilities to steamroll its way through competitors like Wal-Mart (NYSE: WMT) and Target (NYSE: TGT).
About a week after Mathrani’s indiscretion, Amazon also happened to announce a massive $5 billion buyback plan. Analysts quickly came out with price targets up to $750 on the stock, and investors opened the parachute on the recent $AMZN free-fall.
While Amazon’s entry into physical retail and its massive buyback have been hogging the headlines, though, there’s another development investors will want to pay especially close attention to…
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Robot Retail Wars
Back in 2012, many will recall that Amazon dropped a cool $775 million on a robotics company by the name of Kiva Systems.
Kiva built robots capable of moving items around warehouses, and along with that acquisition came 25 customers, including big-name retailers who rely on the bots such as Toys R Us, Staples, Walgreens, Gap, Dillard’s, and VF Corp’s Timberland.
Fast-forward to 2016, and Amazon has integrated over 30,000 of Kiva’s robots as the stout backbone of its vital fulfillment centers. The robots are a key component of Amazon’s one-day delivery. They also allow the company to significantly reduce labor costs through efficiency in automation.
Now, after four years of keeping Kiva’s doors open for business, Amazon has dropped a bomb on Kiva’s old customers: the company wants the technology all to itself and will be cutting off service access to all other retailers by 2019.
This has two incredibly important implications…
First is that Amazon could very well be at a major inflection point. At the same time the company is expected to break into brick and mortar, it’s cutting off its competitors from the very same cost-saving technology it will use to outperform them. This is very unlikely to be a coincidence.
After playing nice with Kiva for years, Amazon is suddenly throwing a major wrench in retail operations across the U.S. that have become highly dependent on the robots. Dirty? Perhaps. Smart? Absolutely.
The second implication stems directly from the first. Now that Amazon is boxing other retailers out, they’re going to have just two choices: either fall behind the times and get cornered by a more efficient competitor, or find a new fulfillment system to replace Kiva ASAP.
This gives especially strong weight to the few companies out there offering robotic warehouse solutions. There are a number of private companies already looking to fill the void, including Locus Robotics, Knapp Logistics Automation, Vanderlande, AutoStore, Dematic, Fetch Robotics, and GreyOrange.
As for the public market, there are really only two companies for other retailers to turn to: Kuka AG (OTC: KUKAY) and Omron Corporation (OTC: OMRNY), both of which trade very thinly as American Depository Receipts.
Both Kuka and Omron have recently acquired competing warehouse automation companies (Swisslog WDS and Adept Technology respectively), both of which offer similar but inferior products to Kiva Systems.
All said and done, these will be the companies to benefit most as Amazon attempts to corner the market and box out its competitors. The only exception, of course, is Amazon itself.
Until next time,
Jason Stutman
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