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How Kills Wal-Mart and Target

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If you thought (Nasdaq: AMZN  ) is killing traditional retailers today, you'd be absolutely right -- and you ain't seen nothin' yet.

The world's largest e-tailer is changing its strategy in a big way. CEO Jeff Bezos turned his coat on sales taxes last year, abandoning a long-running campaign to avoid paying taxes on most of its sales. Now, Amazon claims to support online sales taxes, as long as they're done in a consistent and easy-to-implement way. Amazon's ultra-efficient operations actually make equal taxes into another weapon in the company's arsenal, because other online shopkeepers will suffer more than Amazon when the taxman comes.

But there's another side to Amazon's suddenly tax-friendly philosophy. If you have to pay sales taxes anyway, no matter where your shipping centers happen to be located, then why not turn that challenge into weaponized plutonium as well?

That's exactly what Amazon is doing now. With several states already imposing sales taxes on online purchases and others due to follow suit, the company is busy building enormous shipping centers in places like New York, San Francisco, and Los Angeles -- massive population centers where Amazon formerly couldn't be bothered to run warehouses because of the tax implications.

And that's how Amazon is turning the retail industry on its head yet again. Financial Times notes that the newfound local access to large markets will let Amazon offer faster shipping than the competition -- all the way down to same-day delivery. Amazon has a history of offering service upgrades at very reasonable prices, like a year's worth of free shipping and streaming movies for just $79 a year. Another low-cost blow with same-day delivery would pretty much remove the last advantage physical retailers have over online stores, namely instant gratification.

"If someone needs a pack of nappies, a mobile-phone charger, or bottle of cough medicine this evening, the only way to get them immediately is to go to a local store such as Wal-Mart (NYSE: WMT  ) , Best Buy (NYSE: BBY  ) , or Target (NYSE: TGT  ) ," the FT article says. "But if Amazon can deliver to work or home in three or four hours -- and at little or no shipping cost to the consumer -- then why bother with the store?"

Why bother, indeed? Many a shopper would happily give up car trips to the store in exchange for having online goods dropped on their doorstep just hours after the order's final click. It's like pizza delivery, except you could buy pretty much anything this way.

Best Buy is responding to increasing online competition by focusing on smaller stores with lower overhead costs, but it will still never match Amazon's fabled ultra-efficiency. Wal-Mart and Target may be reduced to mere grocery stores and clothing retailers in the long run, which isn't enough to support today's enormous big-box warehouses. And Amazon's same-day delivery could eventually replace the supermarket as well, once shoppers get used to the idea of buying milk and eggs online.

This is how Amazon will kill big-box chain stores the same way Wal-Mart and Target destroyed scores of mom-and-pop stores. Read our special free report titled The Real Cash Kings Changing the Face of Retail to learn more.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of and Best Buy. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Wal-Mart Stores. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 15, 2012, at 9:52 PM, maiday2000 wrote:

    Same day shipping and delivery? Pipe dream. Either they have to count on the USPS (LOL) or one of the other shippers (expensive) or do it themselves (more expensive). Can they really keep their prices that low then and still maintain margins and a stock price trading at 50x earnings? I don't think so.

  • Report this Comment On July 16, 2012, at 12:22 AM, matthewluke wrote:

    If Amazon builds a bunch of local warehouses instead of having far fewer regional warehouses, how is that much different from just having an actual brick and motor retail presence?

    Not a rhetorical question. I'm genuinely curious. If these future warehouses are so close where Amazon could offer shipping and delivery within 3-hours, I imagine that has to be an absolutely huge increase from the 30-some warehouses they have currently.

    And at that point, what would stop Wal-Mart and Target from offering same-day delivery directly out of their local stores? With their thousands of local stores already in place, seems like (seems like, not sure) Wal-Mart and Target might be in a better position to offer 3 hours delivery (if that's what they wanted to do). I'm of course not suggesting it would be simple for anybody to just instantly make the decision to offer 3 hours shipping and delivery. But if this is a possibility for Amazon, it certainly wouldn't be limited to just Amazon. It would be possible for the Wal-Marts and Targets of the world as well. Right?

  • Report this Comment On July 16, 2012, at 12:23 PM, jason092201 wrote:

    The AMZN / Fool love affair continues. These claims won't materialize because AMZN's cost of goods sold isn't as low as people think it is. More warehouse's and more staff (for them to mis-treat which is well documented) will only serve to raise their cost of doing business. Anymore it seems as if the Motley Fool's are a subsidiary of AMZN the way they write about them!

  • Report this Comment On July 16, 2012, at 3:34 PM, chopchop0 wrote:

    Of course fool ignores the pricing power that the world's largest retailer holds. It would be foolish (with a lowercase f) to ignore that.

    As it stands, WMT can outdo AMZN when it comes to obtaining rock-bottom pricing on a number of items. In addition, they have jumped head-first into the online realm with things such as "Order online, pick up and pay with cash"

    Pay with cash:

    WMT > AMZN for pricing:

  • Report this Comment On July 17, 2012, at 11:47 AM, mikejune231946 wrote:

    No way on same day delivery. If they build more warehouses it looks like they are just becoming what Wal-Mart and Best Buy are already...

  • Report this Comment On July 27, 2012, at 11:00 AM, chopchop0 wrote:

    Yup.... from yesterdays CC

    "We don’t really see a way to do same-day delivery on a broad scale economically," says Amazon's CFO during his company's Q2 earnings call, addressing speculation on the subject.

    Amazon's moat will dry up a lot as soon as national sales tax is implemented. It's cost structure will still have the advantage of no B&M for certain purchases (like the disadvantage that stores like BBY and RSH have)

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