Is Amazon a lousy retailer? The answer truly is in the cloud

How Amazon is using cloud dollars to freak out every retailer in the country

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Credit: Mike Mozart

For the bulk of the last decade, Amazon.com has been the bogeyman of every brick-and-mortar retail chain. Sales dropping in-store? Amazon's fault. Sales dropping online? Mobile sales lower than we had projected? Amazon's to blame.

This reached its height of ludicrousness last year when retailers said that a brief Amazon promotion amounted to showrooming and that it was to blame for dropping in-store sales.

Let me get this straight. A customer has driven all the way to your store, parked, walked in, found the item they sought, had that item in their hands merely a few dozen feet from the checkout lanes and they chose to put it back so that they could buy it from Amazon and wait days for it to arrive and potentially pay shipping, too? How pathetic must be your customer service be to lose that sale?

The physical retailers doing the complaining simply had huge weaknesses in their operations pointed out — nay, taken advantage of — by a competitor, which is, after all, what a competitor is supposed to do.

What brings this to mind today is some of the reaction from Amazon's latest earnings report. In that report, Amazon for the first time broke out its retail figures separately from its cloud numbers. And in what was a surprise to no one in retail, Amazon's cloud operations have been heavily subsidizing its e-tail operations.

How heavily? RISNews' Joe Skorupa probably summed up the retail sentiment the most succinctly: "Amazon is a lousy retailer. It reported a loss of $57 million on $22.7 billion in revenue. Heavy investment in Amazon Prime and fulfillment costs wiped out the profit (and a little more) from retail sales."

The problem is that the conclusion, albeit understandable, is dead wrong. First, Amazon is a lousy retailer? Huge physical chains like Target, Walmart, Sears and Home Depot can't complain about how much business Amazon is stealing from them and then say that Amazon doesn't know how to sell.

The RISNews piece didn't really mean that Amazon was a lousy retailer. It meant that the retail part of Amazon is a lousy business, in the sense that every business's stated objective is to make profits and to be self-sustaining. A restaurant, for example, that makes top-quality gourmet meals that delight its customers — who have to wait months to make a reservation — is a lousy business if it routinely loses money. As my accountant used to say, "That's not a business. It's a hobby."

But to say that about Amazon is to not understand Amazon. It's not as though Amazon planned to lose money and that the cloud business cropped up and saved the day. It's that the cloud business has done incredibly well and it is allowing Amazon to properly invest in its retail future. That is something that many retail chain IT execs can only dream about.

Amazon isn't wasting its money. It's brilliant investments in warehouses, drones, bulked-up Amazon Prime and a universe of partners that come pretty close to being able to get almost anything an Amazon shopper wants. The cloud is allowing Amazon to profitably invest in retail to create a world-class retailer for 2020 and beyond. Can Sears say that? JCPenney?

Amazon is definitely not a lousy retailer. It is, however, an e-tailer that has gotten quite good at making almost every other retailer feel lousy.

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