Can Amazon.com (Nasdaq: AMZN) rev up sales with a new retail section -- even if it seems like a mystifying choice? Some of Amazon's recent initiatives have baffled some observers, but the company's gutsy moves into unexpected segments might just help it win in the long run.
Many people thought selling groceries was one of Amazon's weirder moves, but I could easily understand it. After all, everybody needs groceries, and there's a lot to be said for offering bargain bulk goods -- or providing certain specialty items. Amazon's vast selection gives it a distinct advantage over local grocery stores.
Selling auto parts online was a bit harder for me to fathom, even though I know that auto enthusiasts are, in general, especially enthusiastic. After all, fewer people work on their cars nowadays, especially since increased computerization under the hood has made do-it-yourself maintenance a bit harder than it used to be.
Furthermore, plenty of bricks-and-mortar companies cater to car-happy customers, including AutoZone (NYSE: AZO), Advance Auto Parts (NYSE: AAP), and Pep Boys (NYSE: PBY). Auto parts are a mature and fragmented industry, with many avenues for purchasing parts -- including eBay (Nasdaq: EBAY), for goodness' sake. (Then again, perhaps that makes Amazon's move more sensible.)
On the other hand, just as everybody needs groceries, every car will need repairs and replacement parts. Amazon.com says it will appeal to auto enthusiasts and consumers with a million new, used, and remanufactured parts. Its "Parts Finder" feature allows shoppers to unearth parts for 10,000 specific U.S. car models. As with Amazon's other offerings, customers can compare products, price, and availability in one easy place, an efficiency that adds to its appeal.
Of course, many investors also worry about Amazon's emphasis on driving sales and customer loyalty through its low-margin Amazon Prime service, which provides free or reduced-priced shipping to subscribers. However, it appears that only 100,000 automotive products are eligible for Amazon Prime or Free Super Saver Shipping; the heavier parts, it seems, are the buyer's responsibility to ship.
Many investors have recently lost faith in Amazon, and it's been criticized for targeting certain retail segments. Of course, not long ago, people weren't entirely convinced that Amazon could sell much of anything over the Internet, be it appliances, electronics, or garden tools. Selling auto parts might sound a bit crazy, not to mention risky. Nonetheless, it might just be crazy enough to work.
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Alyce Lomax does not own shares of any of the companies mentioned.
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