Will Whole Foods Give Amazon Indigestion?
June 16 2017 - 3:32PM
Dow Jones News
By Eliot Brown
For most of Amazon.com Inc.'s 23-year history, the online
retailer steered clear of bulky acquisitions, instead picking off
small startups and choosing to build products and business lines on
its own, be it an e-reader, a movie business or a monstrous cloud
computing network.
That all changed on Friday.
Amazon's $13.7 billion deal to buy Whole Foods Market Inc.
dwarfs any previous acquisition by more than a factor of 10 and
brings a new level of scale and complexity for the online retailer
to digest.
The company's largest acquisition came in 2009, when it
purchased Zappos.com Inc. for $1.2 billion. The online shoe
retailer fit snugly into Amazon's main business, and its
under-2,000 employee workforce was relatively easy to absorb.
Whole Foods has about 90,000 workers spread around 460 stores in
over 40 states and three countries, a real-estate footprint that
totals six Empire State Buildings' worth of space. The staff alone
increases Amazon's workforce of 341,000 by roughly one-fourth, and
it would make a giant leap into bricks and mortar stores for a
company that has long loathed physical retail and only recently
began operating a handful of stores.
With scant detail from Amazon, Wall Street was full of questions
Friday as to how the acquisition would transform the Seattle
retailer. How would Whole Foods fit in with Amazon's Prime delivery
service? What does it mean for Amazon's nascent grocery-delivery
business? Will Amazon stock Whole Foods with its hardware offerings
and books, or leave it untouched as its own unit?
But one point was clear: the sheer size is a new thing.
Mark Mahaney, an analyst at RBC Capital Markets, wrote in a note
to clients that while Amazon has been trying to get some bookstores
off the ground, "the company has always veered away from physical
retail presences."
By contrast, other Amazon deals have, on their face, appeared
far more intuitive or easy to swallow. Its roster of deals --
totaling 92 over the past two decades, according to Thomson Reuters
-- has included dozens of e-commerce, logistics and online search
companies.
In March, Amazon struck a deal to acquire Dubai-based Souq.com,
one of the Middle East's largest e-commerce businesses that offers
over 8.4 million products. And while Amazon strayed a bit far
afield from its main business with the 2014 purchase of online
video-gaming company Twitch Interactive for $970 million, that
startup had just 170 employees working out of a small San Francisco
office.
Even for large deals that seem to fit with Amazon's DNA,
headaches have arisen. In March, Amazon announced it was shutting
down its Quidsi unit, the owner of Diapers.com, which Amazon picked
up in 2010 for $545 million, because it couldn't make it
profitable.
And Zappos, run as its own autonomous unit, faced an exodus of
14% of its core staff two years ago amid a rocky transition to a
management system in which employees don't have bosses.
(END) Dow Jones Newswires
June 16, 2017 15:17 ET (19:17 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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