The Day Ahead: Amazon's number games

Commentary: Amazon.com appears to be having a bit of an identity crisis. Is it a retailer or an online retailer? Depends on whom you ask.

If you listen to chief executive Jeff Bezos' and chief financial officer Warren Jensen's presentations at the company's analyst briefing Tuesday, Amazon’s true competitors are retailing giants such as Wal-Mart and Best Buy. After all, building up technology costs less than building new stores, Bezos pointed out.

And Amazon doesn’t have to shell out for inventory the way a physical store does. Jensen even put up a neat graph to show how efficient Amazon is, compared with the lumbering retail dinosaurs. Revenue growth at Amazon easily topped some of the most well-known names in American retailing, including Wal-Mart, Williams-Sonoma and Barnes & Noble.

So why is it that when the company’s division managers were called up to speak, the lists of competitors suddenly changed?

Why is it that when we compare Amazon’s music sales, the nearest competitor is suddenly CDNow, instead of MusicLand? Why is it that when Amazon touts its number one spot in books, toys and videos, it’s as number one online seller?

There’s nothing wrong with Amazon comparing itself to online stores. Indeed, by just about every comparison, it’s the king of the dot-com retailers.

But online, the company gets to be a big fish in a tiny pond. Start comparing the company with the real world, and the pond suddenly looks like an ocean, and Amazon’s the size of a goldfish.

Let’s compare Amazon with Wal-Mart, for instance. Wal-Mart is arguably the holder of the title Bezos is eager to claim, that of the "Earth’s biggest and best merchandiser ever". (OK, Wal-Mart may not be the world’s best merchandiser, but it’s certainly the biggest.)

Wal-Mart easily dwarfs Amazon in size, $165bn in fiscal 2000 sales, compared with $1.64bn for calendar 1999 for Amazon. (Wal-Mart, like most mainstream retailers, ends its fiscal year in January.)

And Wal-Mart actually has better margins than Amazon, 21.4 for fiscal year 2000, compared with Amazon’s 1999 figure of 17.7.

Wal-Mart’s revenue per share ratio is $40.51, compared with $6.14 for Amazon.

Amazon does best Wal-Mart in a price-to-assets ratio, but throw in Amazon’s debt, and you get a negative book value/share ratio for Amazon.

But wait! you cry, these comparisons are silly –- Wal-Mart is 100 times bigger than Amazon, and there’s no rational way to compare their finances.

If you can’t compare the two companies that way, then Amazon shouldn’t be trying to compare them in other ways.

Of course, Amazon’s growth figures dwarf Wal-Mart's. Wal-Mart is the largest retailer in the world. We’d all have to go out and buy a lot more Thighmasters for Wal-Mart’s sales to increase that much.

Jensen compared Amazon’s growth with that of six companies, four of which had double or more the sales Amazon did in 1999. (The exceptions were Williams-Sonoma, which had total sales of $1.38bn in 1999, and MusicLand, which had sales of $1.9bn.) And except for Wal-Mart, they all compete against Amazon in only one or two categories.

At some point, the law of large numbers kicks in. Amazon comparing itself to stores like these is like me comparing myself to Marion Jones in the 100-metre dash. I could cut my time in half, an impressive feat, but she’ll still whip me.

If Amazon wants to count itself as one of the big-league retailers, it’s going to have to put up the numbers. And it’s going to have get valued like an offline retailer, something I doubt is at the top of Bezos’ list of goals for the coming year.

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