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Business Analysis: Amazon, and Retail

filed under , 20 August 2010, 08:04 by
  • Amazon is just 4% of the market and grossly overhyped
  • Retail is at $4 Trillion even in a recession – yes, $4 Trillion even in a recession
  • and the actual valuations of some companies need to be examined even if [especially if] they ‘seem’ to be ‘unprofitable’

and I can back that up with Math.


So, the Census Bureau (love those guys) post monthly retail numbers, and you all know how I ♥ #s.

The total retail picture includes two massive chunks that tend to distort the whole, however: Cars, and food.

Gotta eat. So food (restaurants and supermarkets) can be considered something akin to a fixed cost, and discarded. And cars (new & used sales, repairs, and sales of parts & gasoline) are Big Ticket Items. I currently do not have a car because the Cost of Repair (to say nothing of a NEW car) is beyond my current means. (Sucks. But at least I can use transit).

There are some other categories that could be considered capital expenditures (building materials) or necessities (prescription drugs, beer, liquor) and so also follow their own [occasionally contrarian] cycles, and fall outside of what I consider ‘retail’ —

If only some smart person could pull just the discretionary retail spending, discounting all these other special-and/or-fixed categories…

say, have I mentioned recently that the Census Bureau (love those guys) is full of smart people?

Let me introduce you to the GAFO number.

GAFO is “General Merchandise, Apparel and Accessories, Furniture and Other Sales” and encompases the following categories tracked by the US Census Bureau in this drool-worthy spreadsheet *

442 Furniture and home furnishings stores
4421 Furniture stores
4422 Home furnishings stores
44221 Floor covering stores
442299 All other home furnishings stores
443 Electronics and appliance stores
44311 Appl.,TV, and other elect. stores
443111 Household appliance stores
443112 Radio, T.V., and other elect. stores
44312 Computer and software stores
448 Clothing and clothing access. stores
4481 Clothing stores
44811 Men’s clothing stores
44812 Women’s clothing stores
44814 Family clothing stores
44819 Other clothing stores
4482 Shoe stores
44831 Jewelry stores
451 Sporting goods, hobby, book, and music stores
45111 Sporting goods stores
45112 Hobby, toy, and game stores
451211 Book stores
452 General merchandise stores
4521 Department stores (excl. Leased Departments)
452112 Discount dept. stores
452111 Department stores(excl. discount department stores)
4521 Department stores (incl. Leased Departments)
452112 Discount dept. stores
4529 Other general merchandise stores
45291 Warehouse clubs and superstores
45299 All other gen. merchandise stores
4532 Office supplies, stationery, and gift stores
45321 Office supplies and stationery stores
45322 Gift, novelty, and souvenir stores

The GAFO number includes my all-important bookstore retail (category code 451221) along with everything else in the mall [excl. the food court] and every damn big box besides, including Sam’s Club and Costco (45291); Staples and Office Depot (45321); Sears, Macy’s, K-Mart, & Target (4521); Wal-Mart (452 or 452112, one or the other); Best Buy, Game Stop (44311 & 44312) — and quite a bit of everything else, from new carpet to Ikea to the local game & hobby shop.

(* I have referenced these census numbers before and most assuredly will reference them again)

Here, let me put that in a chart for you:

The scale on the x-axis is millions; that red vertical line is the 50 Billion mark, the green one is 100 Billion. Dollars. Retail. Each Month — and retail excluding all food sales, gas, and cars.

Big Honkin’ Numbers.

I have one more census chart in reserve, but let’s fall back and first consider


Amazon built itself from the ground up, starting in 1994 and advancing inexorably year after year, exploiting new technology to ream retail a new one and take its place as AMAZON, Retail Giant, destroyer of publishers, devourer of worlds.

Amazon is big, sure: for FY 2009 they reported North American sales of $12.8 Billion and overall sales (all product classes, internationally) of $24.5 Billion. [internets] Oh My God Amazon is Eating My Lunch & Just Stole My Girlfriend… Panic… [/internets]

Scale, folks. Scale:

Amazon managed $12.8 Billion in [US] annual net retail in a year when December retail sales were $136 Billion — just for December! — and just for that GAFO classification, which is comparable (if not an exact analogue) to Amazon’s market segments. If we expand that to all retail for 2009 [as tracked by the census] then Amazon manages just $12.8 Billion of $4.13 Trillion in overall economic activity, or about 3% of retail.

Even the $25 Billion Amazon does in the US & Internationally — is only 6% of the $400 Billion Wal-Mart does annually.

Amazon started as a bookseller, sure, in as much as they sold books online at a discount. And Amazon deserves credit for losing money for close to a decade before showing a profit (talking a line of shit about “the future” to whomever would listen to secure their funding, apparently) and now they are a multi-billion dollar business & showing a profit & bully for them.

[there is something in investing circles known as a P-to-E ratio: this ain’t it; just some simple math]

So, Amazon did $24.5 Big Bills in 2009. Best Year Yet.

AMZN has 448 Million outstanding shares, and [at today’s closing price, $127.57] a market cap of $57 Billion — at time of posting.

So that’s annual sales [not profits] of around $55 a share, and sales-to-“value” [value in quotes since market capitalization is based on stock prices and as such is completely arbitrary and subject to whims of the market] of 1:2.3 — that is to say, Amazon may be ‘worth’ $57 Billion but they do less than half that in sales each year.

Since I dragged Wal-mart into this:

Wal-mart had net sales of $405 Billion, outstanding shares numbering 3.7 Billion, and a market cap of 185.7 Billion [trading at $50.06 at time of posting]

That’s sales per share of $109, roughly, and sales-to-“value” of 2.1:1 — Walmart is ‘worth’ $185 billion and they do more than twice that in net sales each year.

Barnes & Noble is small fry in this fight: only 58 million shares at $15.20 [at time of posting] for a market cap of $895 million.

Not even worth a billion dollars. B&N sales must suck too, right?

per the most recent annual report: B&N 2009 sales of $5.8 Billion.

So, sales per share of $100 and (since B&N is trading at a fraction of Wal-Mart share price) sales-to-“value” of 6.5:1.

That is to say, B&N is valued at $895 Million (you could buy all outstanding shares for that amount) but in 2009 (a bad year for retail) and in bookselling (a niche market, apparently, with as quickly as the media has been to pronounce us dead each year for the past three years) still managed $5.8 Billion in gross sales and $1.6 Billion in gross profits.

Now, all kinds of things slowly whittle away that gross profit number, until we end up with only $36 Million in earnings. But:

For just .9 Billion Dollars one could theoretically buy a company that grosses six times that each year – and do I have to remind you we’re in a recession and with certain per-share statistics that seem to match Wal-Mart and at a bargain basement price of $15 a share. — And 58 Million Shares seems like a lot but Amazon has seven times that number and Wal-Mart 63 Times as many. You could buy B&N, actually; Walmart & Amazon, not so much.

Which is where at least one investor found himself: considering buying B&N at a bargain basement price. What Burkle didn’t consider is that there was at least one guy who was pretty sure he already owned B&N, and didn’t feel like selling.


As noted, Amazon is eating my lunch and my future and just stole my girlfriend; all my friends are saying they saw her hanging off of Amazon down at the local malt shop in a way that was much more than just friendly. Amazon has the black leather jacket, the motorcycle that’s “in the shop this week, but I’ll show you later” and the attitude.

Bookselling is old-and-busted, e-books are the new hotness.

And yeah, technology can change overnight.

Let me pull that other census chart:

E-Commerce is growing, and has been growing for a decade. Q4 (December, holiday sales) each year are spiking quite a bit actually, though the overall trend is a bit flatter.

Note that trend, though. look at it:

Not an explosion. Steady growth of a half percent each year, plus a smidge. Sure, some players [Amazon, one supposes] can demonstrate or manipulate numbers that make the e-volution seem like a much bigger thing, but actual, independently sourced numbers point to a process that is much more gradual. 2001 is post- dot-com-bubble, in fact, and is a decent starting point to track online sales: Yes, this is a growing and promising part of the business, but e-sales are, um, still just a fraction.

4 percent of the total. 4% of 4.3 Trillion. — yeah, that’s a lot [a whole lot] but still just 4% — And Amazon’s $25 Billion doesn’t seem quite so hot when considered as a mere fraction of $107 billion in total e-commerce

Amazon may be #1 but isn’t even a fourth of total online trade. There are (apparently) a lot of e-commerce transactions [porn] that have nothing to do with books, e-books, or kindles.

It’s all a matter of scale.

And selling things at a discount doesn’t help your bottom line as much. Sure, bookstores charge a bit more, but we also have to provide a more comfortable experience, and (provided we can sell something) enjoy a more comfortable profit margin.

And I’ve been so busy proving that Amazon is not only a [really, really minor] fraction of retail but also [and surprisingly] just a fraction of online sales, that I didn’t even have time to point out that e-books are a fraction of a fraction of a fraction of either $4.3 Trillion in retail or $11 Billion in book sales (just 3.3% per the AAP numbers I just linked to — which means that e-books are approaching but haven’t quite reached the same overall ratio of e-commerce to retail as posted by the Census Bureau — that is to say, e-books are new, but haven’t yet proven they are an exceptional category that will outperform ordinary e-goods (including physical goods ordered online)

—sure, Amazon reports that e-books outperfrom one format of physical books, but not that they’ve outperformed all physical formats — and Amazon is not the industry. Hell, Amazon isn’t even the whole internet. And, um, why only e- versus hardcover, Amazon? How does e- do against all books, including the popular paperback formats? eh? Oh, cat got your propaganda?


Amazon’s Billions don’t even crack 3% of retail — though they do manage 4% of the general goods GAFO number.

& E-Commerce isn’t quite 5% —

— so Wal-Mart, Sam’s Club, and CostCo are still the primary enemy
— and while digital is not to be discounted or laughed away, no one [no, not even Amazon] has the solution, let alone monopoly, on e-books yet.

Scale, folks, scale: Sure, Amazon has headlines, and would love for you to think all e-books are Amazon, but the reality is far from that, and Amazon is trading on a book ‘supremacy’ that is itself a myth.

Yes, I’m a bookseller, but look at the numbers: Even if all of Amazon’s 5.9 Billion of ‘media’ sales constituted books (and they don’t, as there are CDs, DVDs, digital music downloads, physical books, and yes, e-books in that total) that’s just half of an 11 Billion dollar market — And even if my assumptions are incorrect and we only get the scraps from Amazon, that’s still a 5 Billion dollar plate of scraps.

The truth is that Amazon is just another retailer and one that captures quite a bit of the holiday gift market, but day to day — not so much.

(that’s my interpretation of the census numbers previously posted – feel free to run your own analyses)


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