The Sentinel #2: How long will Amazon Retail last?
A Brief History of the Titans of American Retail
A quick quiz. Who made the following statement?
“Amazon is not too big to fail… In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.”
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ANSWER: It was Jeff Bezos in 2018.
It was in response to a question about lessons Bezos had learned from the bankruptcies of other big retailers. Bezos was unsurprisingly logical and clear-eyed about possible evolutions in the future.
Sears Dying Out with a Whimper
Death comes to us all. As the curmudgeonly Dr. Gregory House in the tv show House MD says about death: “It's always ugly - always! You can live with dignity; we can't die with it!”.
You can see the remarkable gap between local and national news in the coverage of the closings of the last of the Sears stores, a storied brand of American Retail, and the Amazon of the early 20th century. President Jimmy Carter reputedly grew up in a home ordered from a Sears Catalog. Now, there is barely a register — not much coverage from New York Times or Wall Street Journal. Only the local papers cover the last shuttering in their state (Idaho, Arkansas, Michigan, and Maine). Only 20-odd Sears stores remain.
So will Amazon, like Sears, die? How long will the run last? To answer the question, let’s peek into the history of Retail.
The table above is from Marc Levinson’s excellent book Great A&P and the Struggle for Small Business in America (Amazon link. I am not an Amazon affiliate and make no money from purchases through the link) on the tumultuous sea-change in the grocery retail industry due to gargantuan growth of A&P. The table shows the largest US retailers in 1929 when A&P became the first retailer to break $1B in annual sales.
Taking a look at the companies in the order presented in the table.
Great Atlantic & Pacific Tea Company, often known as A&P, founded in New York in 1859, was the largest firm on the list and continued to be the biggest grocery juggernaut crushing the competition for a long time. A&P shut down its operations in 2015, after a tremendous 156-year run. A&P was the primary target in the 1936 Robinson-Patman Act that prohibited price discrimination among distributors. 156 Years.
Sears Roebuck and Company was the last biggest retailer in the U.S. before Walmart surpassed them in revenues in 1989. Even though in popular culture, Sears was known for its department stores, it started as a mail-order company in 1886. In fact, their mail-order catalog business was the “internet retail before the internet” Sears opened their first store only in 1925, more than 39 years into their existence. As with Walmart and Amazon, the fears were widespread that Sears’s opening stores would kill many other smaller chains. Sears Holdings filed for bankruptcy in October 2018 and shuttered its last stores in 2022. 136 years.
F.W. Woolworth — A Pennsylvania startup in 1879. Woolworths was a variety store - a Nickel-and-Dime store in which all goods are sold at the same low price of 5c or 10c — a progenitor of the “dollar store”. Woolworth went out of business in 1997 closing all department stores. (However, the company’s sporting goods arm survives now as Foot Locker). 118 Years.
Montgomery Ward was similar to Sears Roebuck in many ways. Founded in Chicago in 1872, and initially a “pure” mail-order business like Sears, Montgomery Ward was the last among the retailers listed to open a physical store, in 1926 (after 45 years of mail-order operation with warehouses and distribution centers). The last Montgomery Ward stores were liquidated in 2001. 129 years.
Kroger was founded in Cincinnati in 1883 and is still around, and in fact among the healthier retailers. With $132.5B of revenues in 2021, it is still among the largest retailers in the world (behind Walmart at 572B, Amazon at 469.8B, CVS Health at $292.1B, Costco at $195.9B, and Home Depot at $151.2B). 140 years and counting…
Safeway is the second firm on the list that is still around. Since 2015, it is a subsidiary of Albertsons and is privately owned by Cerberus Capital Management. In 2022, Kroger acquired Albertsons. 107 years and counting…
JC Penney was founded in 1902 (Wyoming) and later developed into a chain of retail stores. JC Penney started internet operations in 1998. JC Penney has been in the red for many years before it fell into bankruptcy during the Covid-19 pandemic in 2020. 120 years (?)
SS Kresge was founded in 1899 and was eventually renamed Kmart in 1977. In 2004, Kmart purchased Sears for 11B and subsequently renamed the merged concern as Sears Holding company, which is now shuttering. 123 years.
American Stores was founded in Philadelphia, PA (where my employer, the Wharton School is located) in 1917, and eventually acquired by Albertsons in 1999. Some of the American Stores spun off as a publicly held chain as ACME stores. Most of the stores went into the private market with Cerberus Capital as Albertsons. Albertsons itself was eventually acquired by Kroger in 2022. 82 years.
Gimbel Brothers (famous for the classic Christmas film from 1947, Miracle on 34th street) was founded in Indiana in 1887 and closed all retail operations in 1987. 100 Years.
A quick survey of the list shows that two firms are still thriving (as merged Kroger & Safeway), and two are on their last legs, struggling to stay afloat (Sears Holdings & JC Penney).
To conclude, Bezos was right on the concept that firms die. However, the top retail firms indeed lasted several decades, not just 30-40 years. They lived through a century, lasting through the Great Depression and two world wars and a few are still surviving after a dozen decades.
The Future of Retail is Still Healthy.
The “retail apocalypse” is often blamed on Amazon’s emergence, just as the death of retail then was blamed on Sears moving from the catalog business to “Brick and Mortar” retail. To say that retail is dying due to the internet is just a lazy analysis, that ignores structural lessons from the 20th century.
Grocery and retail is a thin-margin business with accruing advantages earned with consistent discipline, compounding of good practices, and operational scale. Margins for successful retail businesses have always been low (in percentages). The operating income for Amazon North America Retail was 2.6% (very comparable to the heyday of Sears in the 1980s). Last year, Amazon made most of its operating income from AWS (see table), which helps to press its advantage in the retail business.
Many of the brick-and-mortar bankruptcies we have seen are due to retailers adapting slowly to fast-changing cultural mores (social media replacing physical malls as “hangout” spots), new capabilities (running a warehouse), and some efficient consolidation of Big-store Retail (e.g. Walmart).
A New Era or Same Old Consolidation?
From the history, we see the prominent brands of the 20th century, were created in a narrow window of two decades from 1890-1910.
In the aftermath of the pandemic, will we see an emergence of new brands? With the tech downturn, direct-to-consumer retail firms (finally, finally!) are being valued like retail firms rather than tech firms. Will we be seeing the growth of new brands that scale operationally and become large firms? Or is the internet just solidifying the large firms: Walmart, Amazon, Alibaba, Costco, and the likes?
More on Retail Apocalypse in future posts of The Sentinel.
Have a good weekend, everyone. To my subscribers/readers in India — Happy Pongal and Sankranti!