Cry Me a River
May 10, 2011,
Warren Shoulberg PUBLISHER/EDITORIAL DIRECTOR
In reporting its numbers a couple of week ago, the giant online retailer announced a 33% drop in its profits, even as revenue jumped by 38%. The reason for the decline on the bottom line was a huge increase - 42% - in operating expenses.
But it wasn't ceo Jeff Bezos going out and buying himself a new jet or redecorating the executive dining room with mink-covered chairs and solid gold dishes.
Dumb old Amazon was using the money on really stupid things: building more fulfillment centers, investing in expanded data centers and hiring more people to help run a company that has been growing so quickly.
Of course, Wall Street and the investment community saw all of this as sheer folly and immediately starting beating up the stock and talking trash about Amazon. Bezos' reaction? Don't bother me.
If all of this sounds familiar, it should. Way back in the early days of online businesses, Amazon was losing a fortune while other comparable business were losing far less or even making a few bucks. Bezos, then as now, kept saying Amazon needed to build its infrastructure and invest in itself in order to create the kind of company required to sustain itself for the long run.
Wall Street, then as now, kept punishing the company.
We all pretty much know how this turned out: Amazon became one of the greatest success stories on the web and most of its contemporaries from that first wave of online commerce hysteria are long since gone. Anyone remember eToys, Webvan or Pets.com?
The short-term attention span of the investment community is nothing new. They have been focused on the next 90 days pretty much since the stock market was created. Even worse, they have usually been even more focused on the past 90 days.
Companies like Amazon have managed to avoid the fear and loathing that emanates from all these guys in suits by building a great business. But they are not the only ones.
Bed Bath & Beyond stopped giving monthly comp store sales and much quarterly guidance years ago, and they have endured because they have built a solid business.
Contrast that with a retailer like Sears Holding, which offered up a lame list of excuses for its most recent performance without any clear cut explanation of how its short-term actions were going to pay off in the long term.
Most of the companies in the home textiles industry are privately owned and so they don't have to answer to shareholders every three months. But an awful lot of firms in the business are controlled by private equity investors, and while the process is not as public, we can't imagine that the performance priorities are any different. Most investment guys have even shorter attention spans than public shareholders, and they want to see the money right away. Patience is not their strong suit.
But the public retailers who sell home products can take a lesson from the Amazon playbook. The old cliché about Rome not being built in a day can be applied to businesses not being built in a quarter. Companies need to better understand their priorities.
Amazon is sailing the right course. Too many other businesses are up the wrong river: Denial.
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