Online shopping wins………… From January 2005 to December 2006, shares of Amazon and Wal-Mart stock were trading at about the same price. During that 24-month period a decade ago, Amazon’s share price averaged $38.22 while Wal-Mart’s stock averaged $38.27 per share. Since then, Amazon’s share price has increased almost 16 times to nearly $600 at the close on Friday (after reaching an all-time of $629 in after-hours trading Thursday night) compared to about a 1.5 time increase in Wal-Mart’s share price to $58.30 on Friday. Wal-Mart has been one of the most successful discount retailers in history, but the retail marketplace and consumer buying preferences are gradually and increasingly shifting away from shopping at physical retail locations like Walmart stores towards online shopping at online retailers like Amazon. The significant divergence in share prices displayed above may be a reflection of the triumph of convenient online shopping at Amazon over physically visiting and shopping at discount retailers like Walmart.
The amazing rise in Amazon’s share price — it’s more than doubled from $287 to $600 over the last year and has increased annually by 32% over the last decade — has made founder Jeff Bezos the third richest man in America, according to this recent NY Post report. With a net worth now valued at $55 billion following the surge in Amazon stock price to new record high levels last week, Bezos surpassed the net worth of the Koch brothers to reach the No. 3 spot, and only trails No. 1 Bill Gates ($84 billion) and No. 2 Warren Buffett ($64 billion).
Amazon’s phenomenal success, as demonstrated in its rising stock price, is example of the important economic concept of Schumpeterian creative destruction (the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”) as the New York Post explained in its article:
Amazon — whose site, critics gripe, has demolished thousands of competing retailers large and small over the past 20 years — said it will hire 100,000 temporary workers to staff its warehouses during the holidays.
Amazon’s remarkable success can also be traced another important economic concept – consumer sovereignty, which describes the reality that profit-seeking sellers like Amazon make the greatest profits when they provide consumers with the best possible products at the lowest possible prices with the best service and fastest delivery. That is, companies like Amazon maximize profits and their share price when they treat their customers like royalty, like the kings and queens of the marketplace.
Amazon’s official corporate version of consumer sovereignty is known as The Amazon Doctrine, as Jeff Bezos explained in the 2012 video below while unveiling the new Kindle Fire HD tablets (go to 1:05:00):
Above all else, align with customers.
Win when they win.
Win only when they win.
Bottom Line: There may be no other large company operating today that better illustrates the economic concepts of creative destruction and consumer sovereignty than Amazon – to the significant benefit of consumers, who are the direct beneficiaries of Amazon’s success as an Internet-based online retailer. The rise in Amazon’s share price is a market measure of its success at fulfilling The Amazon Doctrine of aligning with customers – its stock is winning in the market only because its customers are winning daily with low prices, great products and great service.
Here’s my economic forecast for the retail industry: Expect continued and very strong hurricane-strength Schumpeterian gales of innovation, with a high likelihood of market disruption and creative destruction, accompanied by huge tsunami-level tidal waves of increased consumer surplus. Hurricane Joseph (Schumpeter) is the consumer’s best friend.
from AEI » Latest Content http://ift.tt/1jJ05GK
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