business news in context, analysis with attitude

Yesterday, MNB took note of a CNBC interview with Thomas Stemberg, co-founder of Staples, in which he advised retailers about how to do battle with Amazon: "You have to go down there and fight in the trenches." He argues that retailers have use low prices as their best weapon, suggesting that when Amazon has to collect sales taxes around the country, it will level the playing field in a way that will hurt Amazon and help competitors.

Stemberg also told CNBC that "the big issue here is that Amazon is selling products at margins that are not sustainable. And for the longest period of time, they've been able to convince Wall Street—'Trust us, we'll make money some day.' At some point in time, there's a day of reckoning."

My comment:

First of all, let me make something clear. I'm aware of how accomplished Tom Stemberg is. He created Staples. All I've done is create MNB.

But … if the CNBC story accurately reflects his views, I'm afraid I disagree with him.

Sure, pricing is important. But I feel strongly that most retailers are going to have to find and exploit differential advantages that have nothing to do with price if they are to compete with entities like Amazon. (By the way…this is what Staples appears to be doing.)

I'm not persuaded that the sales tax issue is going to be significant. That's not been Amazon's experience, for the most part.

And finally, Amazon has profits. It just invests them in growth, in laying the infrastructure that essentially raises the bar on service and value and availability, making it harder and harder for other companies to compete with them effectively. That's different from not making money. I suppose there will come a point when it cannot do that anymore, but in the fast-evolving 21st century economy, that point may not be now.


One MNB user responded:

Regarding the article on Tom Stemberg’s views, I must say that Tom is a very well regarded marketer. I interacted with him when I was a food broker in New England when he was with Star Market. He was outstanding even then. His subsequent founding of Staples along with Leo Kahn and its success, speaks for itself.

On his comments about retailers vs. Amazon, the retailers in the long term have the edge if they use as a business model – Service and Quality.  It will win out in the long run. There is no question that Amazon is formidable, but the world is big enough for both to prosper. Bottom line – if you buy an item and then have problems, it is easier to deal with a person face to face than going on line on a computer to get a problem solved.


Sometimes it is easier. But not always.

For the record, I'm not questioning Stemberg's reputation or expertise. I just disagree with him on these conclusions.

MNB user Gregory Grudzinski wrote:

You nailed it—Stemberg is obviously an accomplished guy who has no idea what he's talking about with Amazon—goes to show you how deep the technology divide is between people who get it and those that don't.

Also, glad to see you make the point that Amazon is making plenty of profit—and reinvesting it.  This is lost on so many people out there it amazes me.

Then again, there are people who still think of Amazon as predominantly an online bookseller.


MNB user Danny Silverman wrote:

Agree with your point on Staples. His comments were…well, laughable.

Perhaps he was misquoted…


MNB user Dave Henry wrote:

You should remind people to read "The Everything Store" to better  understand what Amazon is doing. It will support your conclusion.

Agreed. My review of the book can be found

here.

And MNB user John Rand wrote:

I wonder how many people in 1985 were saying Walmart was unsustainable because it didn’t have high enough margins…

Excellent point.
KC's View: