If even a slightly credible rumor is true, that Amazon is eyeing an acquisition of JC Penney, Jeff Bezos would be making another huge strategic mistake. As I pointed out last March, the fact that Amazon chose to acquire Whole Foods (grocery being one of Bezos’ early declarations that Amazon needed to get grocery and apparel “right”) was the first, huge strategic mistake. Not only is Whole Foods an upscale grocer, not quite compatible with Amazon’s more mainstream brand, the business was not in good shape when they acquired it, and they’re still fiddling around with it to get it right. Secondly, how could any reasonable strategic mind not have understood that Walmart (their archrival) had close to a 30 percent share of market and is still growing. So, any idea of becoming a competitor in grocery, and particularly with tiny Whole Foods, was a futile vision.
Now, getting apparel right was the other category he committed to. If the somewhat credible rumor is correct (scooped by WWD), and the same ill-informed strategic minds within Amazon (possibly Bezos himself) are suggesting they acquire JC Penney, I would say this is not a strategy that makes any sense. In fact, it’s a rather dumb idea. Kohl’s would be a smart idea. The great strategists at Amazon must have realized that JC Penney was on the brink of collapse even before the virus. Aha!! Maybe the underlying strategy is to acquire JCP for a song. How shortsighted would that be? To inherit a much larger bankrupt business than a wobbly little grocer?
I don’t know, but maybe there are just too many engineers running Amazon.
Amazon’s Food Fight
I wrote earlier this year that with a market cap of $1 trillion, give or take billions, had Jeff Bezos acquired Kroger, he could have slipped into second place overnight. Whole Foods was not only stumbling even before they were acquired, strategically Whole Foods could not provide Amazon meaningful scale in the grocery space. Compared with Walmart’s huge share of market, Whole Foods served a small, upper-income niche which self-limited any major growth potential. At the time I scratched my head as the brilliance, or common sense of Jeff Bezos. If his long-term strategy is to get grocery “right,” why didn’t he acquire Kroger with about 2700 physical locations in the U.S. or one of the other larger, more successful grocers to fulfill online orders and become customer pick-up points for online grocery orders? Walmart offers pick-up of online orders at about 3200 of its more than 4700 U.S. stores. So, Amazon announces that 150 of its 500 Whole Foods locations is now offering in-store pick-up. Wow! That’s kind of like Mighty Mouse, with mouse being the operative word.
Mr. Strategist, You Missed My Advice to Acquire Kohl’s
In 2017 upon the launch of Kohl’s deal with Amazon to place Amazon pick-up, return and Amazon- branded devices shops in its stores (now in all Kohl’s locations), I asked, “Is Amazon envisioning a future acquisition of Kohl’s?” Then I went on about why the acquisition would create an incredible synergy.
Amazon will never become as dominant in the physical world as Walmart. And making stupid acquisitions will just keep Amazon falling further behind. There’s also a lot of hubris at Amazon, which is dangerous.
Following are the major strategic reasons why a Kohl’s acquisition is an obviously better play than JC Penney (with the exception of the acquisition cost, likely much higher for Kohl’s). However, the added long-term value Kohl’s would deliver would be immense.
- Kohl’s has the fourth largest apparel share according to Statista, at 4.5 percent, almost double that of JCP.
- Kohl’s has roughly 1150 stores that can also operate as distribution centers.
- JCP will end up with around 600 plus or minus after its bankruptcy.
- The majority of JC Penney stores are in malls where traffic has been tanking for years even before the virus.
- Kohl’s locations are off-mall in neighborhoods where their millennial and working moms reside, where time and convenience are a luxury.
- JC Penney is in survival mode, while Kohl’s created and was implementing bold strategies prior to the virus and will continue to do so.
- Amazon brings tremendous technology and e-commerce experience to both, as well as the capital to create and execute bold initiatives. However, Kohl’s is in a much better position to take advantage of the synergies.
Hindsight Is Foresight
So, Amazon, you blew a chance to become important in the grocery business. You’re fortunate enough to have a market cap larger than the next seven or eight largest retailers in the U.S., which almost allows you to acquire entire industries. Even so, in my opinion Amazon will never become as dominant in the physical world as Walmart. And making stupid acquisitions will just keep Amazon falling further behind. There’s also a lot of hubris at Amazon, which is dangerous. Walmart has not fallen into that trap, and I doubt they ever will, given their culture.