Take advantage of Prime day anyone?
How about order a custom good from Ali Baba?
Recent finance articles and the pundits behind them have taken aim at the retail sector and questioned just who will be able to compete with the online giants as more and more business goes on line. Amazon in the US and Ali Baba in china have been establishing an unparalleled user base that traditional retailers are trying to just now take a crack at, unfortunately they are finding just how tough the going is. You see the online retailers are still considered tech, tech companies don’t need to show the fantastic eps and forward P/E ratios that traditional retailers do, investors will throw money at them solely for their growth potential. No one questions how these companies will finally figure out how to turn a profit (although Ali Baba claims they already do).
Therein lies the conundrum, the R&D needed to establish an online presence is a huge expense that would normally be spent on new store expansion, cap ex related to store efficiency and maintenance and or increasing the efficiency of the supply chain. The monetizing of the online retail space will be slow and plodding for Target or Walmart, the up front expenses will eat into their eps in the future and the equity value will fall until investors are comfy with the P/E ratio.
Once these companies do get the hang of it, they will definitely begin to weigh the feasibility of their online segment with their physical retail and evaluate which stores can be closed in order to compensate for the new expenses. This will lead to lay offs in one of the largest sectors of the US economy for overall employment.
So I pose the question to you, is this move to an online economy a positive or a negative for a retail economy like the United States?