It's no secret that Amazon.com (NASDAQ:AMZN) wants to expand its presence in local markets. Back in 2011 the company launched Amazon Local, a discounting service similar to Groupon. They also spent five years testing Amazon Fresh (a grocery service) in Seattle before rolling it out in other cities, and recent reports point to Amazon entering into a local food delivery service similar to Grubhub. There's no market the online retailer won't enter, which is why Fortune 500 giants Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) have a reason to be concerned, and so does Angie's List (NASDAQ:ANGI).
The home improvement market is huge
The Home Improvement Research Institute has estimated product sales in the market at $287.3 billion in 2013 and also estimated that it will increase to $345.9 billion in 2017. During their last fiscal year, Lowe's sales were $53 billion and Home Depot's were $79 billion. Combined they have 46% of the market cornered. It's a highly segmented market that includes competitors 84 Lumber, Sherwin-Williams, and Ace Hardware, just to name a few.
Amazon has two competitive advantages over the brick and mortar stores that can't be ignored. The first is the voluminous amount of data they have available to them and their powerful algorithms that push the right product in front of the customer. It will allow them to intelligently serve as the intermediary between the customer and professional third party service providers. The second competitive advantage Amazon has is that it is the "everything store," which makes it a one-stop shopping experience for small businesses. Not only do they need the products that they directly service or install, they need things for the everyday running of the business as well.
Amazon is a huge threat to everyone
It's very likely that Amazon will offer a similar service as Angie's List, and that's where they'll create value for their customers. It's doubtful that they'll charge for it like Angie's List does and it's likely that Amazon's service will be integrated into the amazon.com site instead of requiring their customers to go elsewhere. Angie's List's yearly package is only $9.99, but who wants to pay for reviews? Amazon also has a much larger platform that it can leverage that could quickly erode Angie's List's market share.
Amazon will target sales through professionals that provide a service. Both Home Depot and Lowe's realize that it's important to attach a service component to their products. So does Amazon. All things point to Amazon leveraging their platform in a compelling way to both their customers and third party professional service providers.
Home Depot and Lowe's might lose market share to Amazon, but they do have physical locations which gives them the advantage of providing instant access to products. Both companies have increased revenue and net income year-over-year and are big players in a growing market. They're not in danger of going out of business anytime in the next decade. However, they should be concerned about what Amazon has in store and its potential value proposition to their professional customers.
The real danger is for Angie's List. Their top line has grown at an impressive rate, but they are still a small company with revenue of only $246 million in their last fiscal year. It's doubtful that Amazon is targeting such a small company directly, but they could be taken under if Amazon comes out with a service that is in the same space as Angie's List.
Lisa Stum has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Home Depot. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.