Why The Rapid Growth Of Mobile Commerce Is Bad News For Amazon

  Shoppers are going mobile in larger and larger numbers, according to on-line retail data leader comScore. Mobile digital commerce is expected to have grown by 25% over the last season, almost twice the growth of desktop E-commerce.  Overall digital commerce is expected to grow by 16%, reaching $61 billion. That may be music to the ears of large e-commerce companies like Amazon.com, and the momentum crowd who have been chasing after company shares for years. Then again, it may be the wrong music, for a simple reason: mobile commerce changes the rules of the game for the retailing industry. It eliminates the boundaries between e-commerce retailing and traditional retailing. Armed with smartphones and tablets, shoppers can now access different sites and compare product prices while in a Wal-Mart, a Best Buy, a Target store or any store. Changing of the rules of the game brings the retailing industry close to what economists call perfect competition, an ideal market whereby consumers have the upper hand, forcing sellers to engage in price wars -- as evidenced by the “price-matching policies” of Best Buy, Wal-Mart and the likes. Price wars or retail deflation—to use the fashionable term of Central Bankers—are certainly good for consumers. But not for retailers, especially for on-line retailers. They depress razor thin profit margins, fueling an exit of weak sellers from the industry (Does anyone remember eToys back in the dot.com era?). In the end, retail profit margins reach “normal profits,” what the capital invested in retailing could earn when invested in alternative opportunities like 30-year US Treasuries. In fact Amazon’s retailing business is currently earning well below what investors could earn through alternative investments like 30-year US Treasuries (see table). Did anyone say bubble?