Wall Street financial analysts and commentators were quick to pounce on Amazon’s recent quarterly earnings announcement.  In the latest quarter (Q4-2011) that included the 2011 holiday buying season, Amazon revenues grew 35 percent, but income was down 57 percent.  Wall Street was very disappointed. Not only were Street analysts anticipating more revenue growth, they have been savage in questioning Amazon’s increased spending and margin erosion.  During the recent quarter, operating expenses were up 38 percent which surpassed quarterly revenue growth.

The other continual topic of speculation revolves around how many Kindle tablets did Amazon really sell during the holiday season.  Supply Chain Matters is just as guilty as others in speculating on the fulfillment wars of Kindle vs. the Barnes and Noble Nook reader, and of course, the largest shadow, Apple’s iPad.  For its part, Amazon remains rather coy in providing very general statements regarding Kindle sales.  The online retailer was quick to point out that Kindle was, by far, the best-selling Amazon holiday product in both the U.S. and Europe. Then again, Amazon visitors were bombarded with constant reminders about Kindle.  While some industry observers and influencers speculate that Kindle sales may have topped six million, the final authority will be Amazon itself.

We all know that Wall Street’s lens on strategy to results centers on the next 90 days vs. a longer-term perspective of market influence.  If all the doom and gloom were taken literally, a short-term investor would have the impression that Amazon executives are spending for the sake of spending.  History, however, provides a far more long term strategy being deployed.

Like the Cheshire Cat, Amazon has a far broader strategy at play and retailers and other online providers had better be paying attention since Amazon is often characterized as the most competitive company ever built.  According to Morgan Stanley: “Amazon is the Wal-Mart of our era but it’s better, in our view — Amazon.com is the combination of technology + logistics company, allowing it to participate in a transition of physical to digital retail supported by store-less (in Seattle) business model that leads to higher long-term economic returns.

What should concern all is where Amazon is investing.  The latest earnings briefings indicate that Amazon continues to invest heavily in global based sales fulfillment centers.  The online provider has plans to deploy an additional 17 centers on top of the over 40 global fulfillment centers already in-place.  Headcount has increased 67 percent from a year earlier, and Amazon reports that the majority of people investment is in operations and customer support areas. Add physical distribution and logistics to a virtual network of incredible online IT, cloud and customer intelligence data infrastructure, and the evolving business model becomes clear.

While some retailers and online providers elect to outsource physical fulfillment, technology and services under a strategy of lowest-cost provider, Amazon blends strategies and technological capabilities together as an unstoppable force in physical and digital based fulfillment of customer needs.  While some retailers such as Target are becoming more aggressive in product and price differentiation, Amazon can have the ability to leverage each of its tools and capabilities to always be the lowest-cost alternative.

Supply chain senior managers and strategists should heed the long-term game plan of Amazon rather than Wall Street’s convenient short-term outlook.

Bob Ferrari

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