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Amazon eyes messaging startup

BY CSA STAFF

Amazon may be looking to bolster its enterprise services offering with an innovative addition.

Corporate chatroom startup Slack Technologies has received inquiries of late about a potential takeover from technology companies, including Amazon. The company is valued at approximately $9 billion, according to Bloomberg.

Sources said in the report that the deal would help Amazon bolster its enterprise services, helping it to compete with rivals like Microsoft and Google. Slack’s chatroom technology would also augment Amazon’s ever-growing services portfolio. For example, the company’s cloud-hosting unit, Amazon Web Services, in February introduced a paid-for video and audio conferencing service — Amazon Chime — that lets users chat and share content.

The possible deal comes on the heels of Amazon’s blockbuster purchase of Whole Foods Market on Friday. The online giant acquired the grocer in an all cash transaction valued at $13.7 billion, or $42 a share.

The transaction is subject to approval by Whole Foods Market's shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.

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Commentary: Amazon-Whole Foods deal ‘potentially terrifying’ for other grocers

The retail sector is used to change, but every so often an event occurs that shakes the industry to its core. Amazon's acquisition of Whole Foods is one of those.

On the surface, the purchase — which comes with a $13.7 billion price tag — is surprising. However, there is an inherent logic in the move which, in our view, brings benefits to both businesses.

For Amazon, Whole Foods fulfills, at a stroke, its ambition to be a serious player in the grocery market. While Amazon could have built up its presence organically, it would have been both costly and time-consuming to bring the business to scale. In our view, an online-only operation would also have suffered from perilously low margins and would have damaged Amazon's profitability as it scaled up.

Whole Foods changes that dynamic. While it won't alter Amazon's ambitions in digital or put a stop to innovative experiments like AmazonGo, it puts the food business on a different and steeper growth trajectory. In essence, it gives Amazon an established business that it can transform through its technology and supply chain expertise. It also gives Amazon a well-known and well-regarded brand that can, ultimately, be sold across Amazon platforms.

Longer term, Whole Foods also provides Amazon with a well-balanced and nicely distributed physical presence that allows it to offer click-and-collect and other services which are linked to the rest of its business. And there can be little doubt that Amazon will develop a proper online presence for Whole Foods which, at the moment, relies on third parties like Instacart for online ordering.

For other grocers, the deal is potentially terrifying. Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant. Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat. The only mitigation is that the more niche appeal of Whole Foods will, at least for the time being, limit the threat to other players.

However, at a time when grocers are facing margin compression from the expansion of discounters like Lidl, the prospect of having to spend more on in-store technology and digital platforms to keep up with the Amazon behemoth is highly unattractive.

For Whole Foods, the deal will come as a relief. The one well-regarded grocery chain has been under pressure for a couple of years and has struggled with sales, margins, and profits. Amazon is effectively a white-knight that has come to its rescue.

In areas like supply chain, where Whole Foods needs to improve efficiency, Amazon will be able to use its expertise to reduce costs. For things like in-store experience, Amazon will apply innovative thinking to both streamline operations and improve customer experience. On the sales front, putting Whole Foods into the Amazon ecosystem will be helpful for revenues. All of these benefits are things that Whole Foods would have struggled with alone.

That said, a big problem for Whole Foods is that the brand is not delivering in areas like taste and food innovation. These are not Amazon's core areas of expertise, so the acquisition will not automatically remedy the issues. If Whole Foods is to be successful over the longer term, Amazon will need to get to grips with something Whole Foods itself has been unable, or unwilling, to fix.

As much as there is a logic for both parties, there is a question as to why Amazon picked Whole Foods rather than another target. In our view, it comes down to scale, brand, and potential. Regarding scale, Whole Foods is big enough to make a difference to Amazon, but not too big to digest and be unaffordable. In terms of brand, Whole Foods is well regarded and gives Amazon a unique and differentiated offer it can work with. Potential is the most significant reason, however: in Whole Foods, Amazon likely sees a good business that needs help to reach its full potential. Amazon feels it can provide that help, and in so doing establish itself as a force to be reckoned with in grocery.

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Walmart doubling down on fashion with Bonobos acquisition

BY Marianne Wilson

Walmart is buying men's clothing retailer Bonobos for $310 million in cash. And the discounter is giving Bonobos founder a key online role.

The deal is in keeping with Walmart's recent efforts to better compete with Amazon by beefing up its online fashion offerings and widen its appeal by buying digitally native, hip brands that target millennials and younger consumers.

Reports about Walmart's interest in Bonobos have been circulating for months.

Founded online in 2007, Bonobos started out by selling men's pants. It has expanded its assortment to include a wider variety of apparel and has opened 35 brick-and-mortar stores ("Guideshops"), with plans to have 100 locations by 2010. It also has a partnership with Nordstrom.

“Walmart has really stepped up to Amazon’s pace, both as a hyper retail innovator and in their growing ecommerce strength through acquisitions," said Charles Dimov, director of marketing, OrderDynamics."The Bonobos acquisition is another peg in the upward direction. Kudos to them for driving retail technology with a strong omnichannel play and presence, and in breaking out of the ‘low price only’ paradigm."

Once the deal is completed, Andy Dunn, founder and CEO of Bonobos will report to Marc Lore, president and CEO of Walmart U.S. eCommerce. Dunn will oversee Walmart's collection of digitally-native vertical brands, which, in addition to Bonobos, also include ShoeBuy and ModCloth. The brands will be offered on Jet.com and possibly other Walmart brands in a variety of countries over time, the company said.

"Adding innovators like Andy will continue to help us shape the future of Walmart, and the future of retail," stated Lore. "I’m thrilled to welcome Andy and the entire Bonobos team. They’ve created an amazing product and customer experience, and that will not change. In fact, Andy will be a great influence on the company, especially in leading our collection of exclusive brands offered online.”

The acquisition is expected to close toward the end of the second quarter or the beginning of the third quarter of this fiscal year.

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