Amazon: The Devil You Know and the Devil You Don’t

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The well-established disruption Amazon.com Inc. (NASDAQ: AMZN) has caused in the brick-and-mortar retail business is spreading. And the fear of Amazon is spreading in sectors as varied as real estate and health care, at least among analysts who dial in to the conference calls of companies in this sector.

An examination of second-quarter conference calls reveals that fully 20% of participants on calls hosted by companies in the S&P 500 index queried company executives about Amazon. The list includes such varied names as Philip Morris International Inc. (NYSE: PM), Johnson & Johnson (NYSE: JNJ) and W.W. Grainger Inc. (NYSE: GWW).

In the retail sector, Amazon’s announced acquisition of Whole Foods Market Inc. (NASDAQ: WFM) may have cooled what enthusiasm remained for grocery store chains, but the effect on brick-and-mortar retailers, especially mall operators, has been mostly positive.

A report at Digiday cites Regency Centers Corp. (NYSE: REG) CEO Hap Stein:

Amazon’s announced purchase of Whole Foods reinforces our conviction that a well-located bricks-and-mortar presence that is convenient to the customer is a critical component to the success of any omnichannel platform.

Wishful thinking perhaps? Simon Property Group Inc. (NYSE: SPG) CEO David E. Simon was less enthusiastic in his response to a question about whether Amazon could acquire a mall chain as easily as it acquired Whole Foods: “I will tell you it’s not a very fun environment.”

In the entertainment business, Amazon competes head-to-head with Netflix Inc. (NASDAQ: NFLX) and now with Walt Disney Co. (NYSE: DIS), which has announced that it is getting into the streaming video business.

Amazon’s delivery services, from Prime to Prime Now, are causing some firms to rethink their business models. Steve Easterbrook, CEO of McDonald’s Corp. (NYSE: MCD), told conference call listeners that Amazon “demonstrates how disruptive the business world is and how quickly it moves.” McDonald’s has instituted its own delivery options, perhaps not out of fear that Amazon will enter the fast-food business but because Amazon has shown that customer service pays.

Johnson & Johnson wasn’t the only pharmaceutical firm that was asked to talk about possible competition from Amazon, which has put together a team of health care experts that may be looking at more than just offering home delivery services for companies like Walgreens Boots Alliance Inc. (NASDAQ: WBA) or Express Scripts Holding Co. (NASDAQ: ESRX). Express Scripts CEO said he would “welcome” the opportunity to work with Amazon on prescription delivery. That may be like inviting the fox to guard the henhouse.

One industry that is missing from the list is defense. While Amazon is unlikely to start building fighter planes and tanks, the Department of Defense and the federal government buy a lot of other stuff from U.S. companies. To make those purchases easier, the U.S. House of Representatives has included in its version of the National Defense Authorization Act (NDAA) a proposal that the General Services Administration’s (GSA) Federal Acquisition Service engage at least two online marketplaces that government buyers could use to buy commercial products. Not just defense buyers, but all government agencies.

The Senate version of the bill includes no such provision, so the details have to be worked out in conference.

Amazon already offers a business-to-business service called Amazon Business that has been performing quite well, according to a report at Defense One. House Armed Services Committee Chairman Mac Thornberry of Texas isn’t worried that Amazon may not have any legitimate competitors for the government’s business: “If you’re buying office supplies, you ought to be able to go on Amazon and do it.”

Long-time supplier of industrial goods to government and commercial buyers W.W. Grainger has been forced to be more transparent about its pricing and, as a result, to cut prices in order to be more competitive, which has lowered margins and profits.

If the Senate agrees to the House version of the NDAA’s inclusion of online marketplaces as acceptable purchasing options, Amazon could be rewarded many times over for its prescience in entering the B2B space. Those rewards will come at the expense of dozens of smaller competitors.