* Amazon is a change agent. The retail landscape continues to undergo change, and with it will come lower retail industry sales, profits and margins.
* Does Amazon create value through its distribution channel or does it destroy jobs? Concerns likely will prompt regulatory and tax responses that could hurt Amazon.
This morning Jim "El Capitan" Cramer vividly relates his experience with the transformation of the retail vertical over the last few decades. Like Jim, I also view Amazon as a company that never, ever again should be dismissed, though many money managers and analysts once again may be duped!
As Jim writes (and with which I heartily agree):
"Nevertheless, anyone who thinks that Amazon won't do to Walmart what Walmart did to my father's customers just haven't lived it. You have to live it to know it. Otherwise, it's too theoretical for your taste.
Believe me, there's nothing theoretical. It's a reality for everyone from Costco (COST) to CVS (CVS) to Walmart and Target (TGT) . And it's an unpalatable but inexorable reality that they never saw coming or, if they were prescient, hoped would never come."
With the stroke of this planned acquisition, the traditional delivery of food items will be upended, forcing a change in the grocery vertical and in the need for other food retailers to respond with urgency through a reduction in prices and an investment in technology in order to maintain their competitive positions against rapidly expanding Amazon's footprint.
The stunning merger announcement on what looked to be a slow summer Friday has significant implications for the retail industry in general and for Amazon that only will be obvious after some time has passed.
Opinions undoubtedly will change, but here are my principal reactions:
With the Whole Foods transaction, Amazon's vast power will be under the microscope. Is Amazon a productive change agent and force for the good of the consumer by virtue of a reduction in product prices? Or is Amazon's disruption of the general retail business a destroyer of jobs, moving previously productively employed workers into the unemployment line?
* Unlike Jim, it is my view that Amazon's shares should be sold on strength as the company could face regulatory restrictions in reaction to its expansion plans and customers who use the service could face a rising tax burden over the intermediate term. It is not clear to me, given the extended valuation, that investors will be so patient with this possible threat.
* Given the disruptions in jobs, malls and elsewhere, I wouldn't be surprised if the proposed acquisition and future acquisitions will be opposed by many, possibly including politicians and regulatory authorities. (Note: Retail stores are closing with rapidity -- an estimated 8,000 stores in 2017 alone compared to about 4,000 in recession-savaged 2008 -- as the business landscape radically has changed due to Amazon's strategic alliances and business objectives and strategies.)
* The acquisition of Whole Foods is an existential threat to grocery store chains and to food manufacturers. The transaction reduces sales, profit and margin expectations for those industries and puts a lower cap on private market values.
* The acquisition is another example how disruptive technological change is an important deflationary influence. (There will likely be no more Fed rate cuts this year!)
* Finally, there are a number of tech companies that will benefit from the need of retailers to adopt new technology to thwart Amazon. The technology beneficiaries are a host of companies that enhance and speed up the experiences of the Internet, mobile and bricks-and-mortar channels. Some possible examples of companies benefiting from the adoption of enabling technology are Twitter (TWTR) (my "Trade of the Week" below), NCR (NCR) , ON Semiconductor (ON) , Shopify (SHOP) , Square (SQ) , VeriFone Systems (PAY) , Verint Systems (VRNT) , Yext (YEXT) , Nvidia (NVDA) and Cognex (CGNX) .