Jeff Bezos, Did You Get Mad at a Future Landlord?

chart01 Here’s a quick look at how the 21st century retail business model works. First, you open an online store because it’s so cheap (today, you don’t even need your own website). Next, you sell as much as you can and use the profits to build huge warehouses where you both store your inventory and finish off your brick and mortar competition. Finally, you open up physical stores for better logistics. If somebody had told you this is how things would work fifteen years ago, you wouldn’t have believed it. However, this is the way things are going.

Amazon is a newcomer to the brick and mortar world. Last week they left many people scratching their heads when the CEO of a regional mall REIT, General Growth Partners, allegedly disclosed Amazon’s plans to open anywhere from 300 to 400 bookstores in the US. Later, in an effort to fix the confusion, the CEO stated that he had never meant to speak on Amazon’s behalf. However, given that Amazon said there’s no immediate plan, one can always assume that there’s something along these lines in the works.

Investors have been well aware that Amazon has been trying their hand at brick and mortar stores. This time last year, Amazon opened its first physical “bookstore” at Purdue University in Indiana. In fact, the store didn’t have any visible inventory, but it was a place where you could order online and pick up your merchandise in the “store”. Last fall, Amazon has also opened a physical store in Seattle, which does have visible inventory.

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purdue.amazon.com

The bankruptcy of Borders, a bookstore with locations across the nation, in 2011 still remains fresh on the minds of investors. People have become convinced that physical stores are a thing of the past. With Kindles everywhere and a humongous online library, why would you even bother with building a chain of bookstores? Some people, however, see a lot of value in the brick and mortar store proposition, mostly related to delivery. Here are a few situations where they would be useful:

  • You don’t want your package delivered to your doorstop.
  • You don’t want to wait and prefer to pick up your purchase in a nearby store.
  • Amazon wants to reduce dependency on shipping companies.
  • To return merchandise, it’s much easier to go directly to the store than the post office.
  • Stores can function as local warehouses to deliver in the neighborhood by land or using drones.

There’s no doubt that the bookstore giant Barnes & Noble is now doubly scared. In addition to competing with Amazon online, it is now likely to have to fight Amazon with physical space. In fact, shares plummeted by 10% when the possible plan was made public, but went back up.

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So, what does this have to do with REITs? The fact that a mall REIT operator was the source leads to speculations about lease negotiations with Amazon. Like Apple and other online companies, Amazon could very well begin to show up in American malls.

It’s never too late to see a revenge of the malls. The same companies that have prompted specialists to pronounce the slow death of malls in America, while also creating an entire generation of people questioning why malls even exist, have now become their tenants. After all, as far as I’m concerned, stores may have become digital, but people still need a physical place to hang out.

Source: General Growth Properties, Inc(NYSE:GGP),Barnes & Noble, Inc.(NYSE:BKS),Amazon.com, Inc.(NasdaqGS:AMZN),Yahoo!Finance

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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