On Tuesday, Sept. 22, Peloton competitor Echelon announced it would be partnering with Amazon (NASDAQ: AMZN) to produce a low-cost exercise bike called the "Prime Bike." Retailing for under $500, the Prime Bike was designed as a no-frills connected fitness device priced far, far below Peloton's connected bikes, which can cost up to $2,495. Amazon stock spiked on the news that it was competing with the high-flying Peloton.
However, on Wednesday, Amazon denied a formal partnership with Echelon, and asked the company to take down the press release and rebrand the bike. Amazon's stock then fell on Wednesday, giving back some of its gains.
Despite the embarrassing moment and Amazon's 14% decline from recent all-time highs, a couple under-the-radar stories from earlier this month are much more consequential for the e-commerce giant's exciting growth potential.
Amazon Fresh opens
Late in August, Amazon announced the opening of the first incarnation of its new grocery store model, Amazon Fresh, in Woodland Hills, California. Amazon Fresh takes a lot of what the company has learned from Whole Foods, which Amazon bought in 2017, and combines it with some home-grown tech, creating a "grocery store of the future" that could be hard for competitors to match.
The grocery business is one of the largest markets Amazon has gone after but hasn't really disrupted in a way it has other tech and retail segments. Amazon Fresh could be the model that cracks the code. Given that the U.S. grocery industry does about $700 billion in sales annually, any type of disruption could actually be a meaningful contributor to the already massive Amazon.
The problem? Although people visit grocery stores regularly, it's a highly competitive, low-margin business. As such, it's hard for Amazon to undercut established large-scale leaders and still make money. Plus, people still like going to a physical store to pick out their own goods.
However, thanks to both cutting-edge technology and some mutual synergies with Amazon's e-commerce business, Amazon Fresh may be able to do it. On the technology front, the store will feature a cashierless checkout option, based on Amazon's proprietary technology used in its handful of Amazon Go convenience stores and one Amazon Go grocery store near its headquarters in Seattle.
It works like this: Customers link their Amazon account to the Amazon Dash Cart through their phone app. The Dash Cart then uses computer vision systems and sensor fusion to identify items you put in the cart. When you exit the store, sensors identify your cart and your Amazon account is charged. The potential for lower labor costs as well as higher throughput for Amazon Fresh versus the industry could be a powerful combination.
Amazon will also be offering "packageless" returns at the Fresh store. That means customers returning items to Amazon won't have to go through the hassle of packaging and printing shipping labels; they can just bring their item in, and an Amazon employee will box and ship it for them. Therefore, the Fresh stores could also enhance the value of Amazon's online e-commerce business.
Expanding into luxury
Another under-the-radar announcement was the recent introduction of Amazon Luxury online stores, with luxury brand Oscar de la Renta opening an Amazon Luxury store for its fall and winter collections.
Why is this a big deal? Because luxury brands have traditionally shunned Amazon as a distributor due to its traditional reputation as a low-cost, mass market site. However, given the closing of physical stores due to the pandemic, combined with Amazon's growing leadership in technology and convenience such as one-day delivery, more and more retail traffic is flocking to Amazon's platform. It looks as if Amazon might have reached a tipping point that attracts a new type of retail vendor to its e-commerce platform.
Amazon is going out of its way to make a separate, higher-tech section within its website specifically for luxury brands. These "stores within stores" feature 360-degree views of clothing and proprietary tools for brands to create their own image on Amazon. Amazon Luxury vendors will also be able to make more decisions around pricing, inventory, and marketing on the site -- more autonomy than other traditional Amazon vendors.
The global luxury market is supposed to grow to by 320 to 330 billion euros by 2026, according to one Bain & Co. study. While half of that will come from China, and is thus likely off-limits, that still leaves a substantial untapped market for Amazon to go after.
Day one again
Amazon is a company that consistently reinvents itself and takes aim at huge markets. Still, based on Amazon's roughly 40% share of U.S. e-commerce sales and e-commerce only making up about 16% of U.S. retail sales in 2019, that still leaves Amazon with over 90% of the retail market to tackle, despite its already massive size. So while connected fitness would be a nice service to have, tapping into the unpenetrated luxury goods market and rolling out a disruptive grocery store model are much bigger deals.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Billy Duberstein owns shares of Amazon. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Amazon and Peloton Interactive and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.
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