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Amazon’s Expansion Threatens Other Companies

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Amazon is looking to expand into private label goods, but what affects will this have their competitors?

Amazons big plans

This month Amazon is looking to expand its business into private label goods. This move will see Amazon looking to sell –

  • Personal care products
  • Household products
  • Baby care products
  • Pet care products
  • Food and beverage

If these plans take off then, Amazon could overtake Target, Walgreens Boots Alliance, and CVS Health in the markets.

The market leader, however, will still remain Wal-Mart.

 

The rise of the online market

The Private Label Manufacturers Association has reported that sales of private label goods in the US in 2015 reached $118 billion. $80 billion of this amount was sold by supermarkets and drug stores.

Amazons move into this market could mean danger for other companies. Amazon has the advantage of Amazon Prime, which offers same day delivery. Online sales are rising with increasing numbers of people preferring to purchase online instead of in store.

Why is this?

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Online vs. offline shopping

There are many reasons why consumers are turning their backs on conventional stores in favour for online stores; some of the reasons are

  • Convenience of the shopping experience
  • Better prices offered
  • A lot more variety or choice
  • Less additional expenses
  • Avoid the crowds
  • Less risk of impulse buying
  • Greater privacy when shopping

However, both online and offline shopping have positives and negatives. The downside of online shopping includes being unable to see physically what you are buying, waiting for your purchases to arrive, and shipping costs can prove expensive.

 

What will be on offer?

Amazon has been planning to introduce private labels goods to their stores for several years. The first brands will become available of Amazons website by either late May or early June. There have been reports that some of the brands on offer will be Wickedly Prime, Happy Belly, and Mama Bear.

The popularity of private label goods has increased over the years with stores such as Wal-Mart to Dean & DeLuca all offering a range of store brand products.

The new private label goods on offer have concentrated on carefully selected items which offer higher profit margins and have greater potential in creating new products before competitors.

Private label goods will only be available to Amazon Prime customers.

There are currently an estimated 50 million Amazon Prime customers.

 

Current Amazon brands

Private label brands are not a completely new concept to Amazon. Currently available is Amazon Basics, which offer a selection of batteries, computer hardware, cell phone cases, etc. They also offer their own brand of clothes, linen, towels, and baby wipes.

New products available will include snack food, tea, cooking oils, nuts, etc. A full list of products is currently not available however there are also rumours of Amazon applying for trademark protection for chocolate, razors, pasta, etc.

 

Amazon vs. Competitors today

Amazons stock rose today 0.6% to 702.8, on May 12; however, Amazons stock reached 722.45.

In comparison, Walgreens stock rose by 1.3% and CVS fell by 1.5%. Target’s stock rose by 2.4% and Wal-Mart managed to rise by 1%, Wal-Marts stock managed a 10% rise on Thursday.

 

The future of Amazon

It has been predicted by experts that with the release of their expansion into the consumable market that Amazon will find itself in second position behind Wal-Mart. However, expansion into the food and beverage market will place Amazon in at a top 10 position by 2019.

Separate from the expansion into private label goods, there are also reports of Amazon becoming the number one clothing retailer in 2017.

The current number one position is held by Macy’s. However, recent earning reports have revealed that Amazon is in a good position to take the top spot from Macys.

Amazon has also hinted at plans to have Echo (a voice-controlled speaker) to be the smart house hub of choice. There are plans to have Echo learn what its users daily routines are, eliminating the need to give constant voice commands. Instead, when you let the Echo device know you are home the device will then act accordingly adjusting lights and temperature to your preferred levels.

There are plans for Echo to eventually take over every aspect of your home, from your TV to your car, while also performing internet searches for you.

Currently Echo, which responds to the name ‘Alexa’, is most often used to play music, despite being able to do so much more.

Echo, however, is proving popular with consumers, there are currently over 3,600 reviews and an average rating of 4.5 on the Amazon website.

Although it is impossible to say for definite what the future holds for Amazon, there is no denying that currently the future is indeed looking very positive.

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Automobiles

Hertz Pulls $500 Million Offering After SEC Review

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Hertz Pulls $500 Million Offering After SEC Review

Fortunately, Hertz won’t be able to sell worthless shares in exchange for real money.

The financially – and apparently morally – bankrupt company ended its bid to sell up to $500 million in new shares that it acknowledged likely didn’t amount to much.

In a regulatory filing yesterday, the company said that the stock offering “promptly” became “suspended pending further understanding of the nature and timing of the Staff’s review.”

In the filing, Hertz said that it had been in “regular contact” with the Securities and Exchange Commission all week. This came after the agency told the company on Monday that it planned to review the stock sale.

SEC Chairman Jay Clayton said Wednesday that his agency had concerns about Hertz’s plan to sell stock while the company is in the middle of bankruptcy proceedings.

“In this particular situation we have let the company know that we have comments on their disclosure. In most cases when you let a company know that the SEC has comments on their disclosure they do not go forward until those comments are resolved,” Clayton said during an appearance on CNBC.

The Process

When companies want to sell a security, in this case more shares, they submit a filing with the SEC. The agency will review the filing. It will also send comments back to the company consistently. In its feedback, it will ask the company to improve the disclosure or any irregularities in the filing. During his CNBC appearance, Clayton did not specifically mention the issues the SEC had with the Hertz filing.

“We at the SEC, were are trying to carry out our responsibility in situations like this as best we can and I expect the other professionals around the situation to carry out their responsibilities as best they can,” Clayton added.

Those disclosures filed by Hertz said “Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels.”

In plain talk, that means the new shares are worthless.

DIP Financing

Hertz shares stopped trading for several hours yesterday before resuming again just before 3:30pm ET. Shares were up double-digits before closing the day with a modest 2.6% gain.

The company, which filed for bankruptcy on May 22, would traditionally get debtor-in-possession (DIP) financing. This would allow it to remain in business as the company went through bankruptcy proceedings.

However, after Hertz filed for bankruptcy, shares traded as low as $0.40 on May 26 before surging to as high as $6.25 on June 8.

Instead of taking the DIP loan that would need to be paid back, the company instead wanted to sell shares. I then planned to use the cash proceeds to pay off creditors. Hertz had hoped to sell up to $1 billion in shares, before trimming the proposed offering down to $500 million.

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Bankruptcy

Kenmore Deal a Short Term Solution for Sears… Simply Delaying the Inevitable

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Sears is one of the most iconic retailers in U.S. history. The company started the mail order catalog in 1888, and grew its brand of department stores from there as it became one of the driving forces behind malls. But lately, times have been tough for Sears. The once proud retail giant has shuttered Sears and KMart stores left and right as it tries to avoid bankruptcy. Now the company is doing something it’s never done before, turning to online distribution to turn things around. But is it too little too late?

Can the Deal Sears Struck with Amazon Right the Ship?

While Sears has been struggling to adapt to modern day retail trends, the company has been bailed out on several occasions by cash injections from CEO Eddie Lampert, who has given personal loans as well as investments from a hedge fund he manages. However, a cash injection isn’t enough if nothing is changing. So Sears is working to change. The next step? Selling its proprietary Kenmore brand through Amazon.

While the deal makes a ton of sense for Amazon, it’s a desperation play by Sears. Amazon gets to offer a leading brand on a pretty exclusive basis. Other than Sears itself, consumers won’t have any other options to purchase a Kenmore appliance. As the world’s leading online retailer, getting a leading brand no one else has just adds fuel to the fire. Smart play by Amazon. But for Sears?

Sears might see a small bump in sales from this deal, but the truth is, those sales won’t be enough to offset the trend of declining sales Sears has been experiencing for years now. Unless Sears has a bigger picture plan for expanding distribution of its products and brands, this changes nothing for the struggling retailer. That’s best case scenario. Worst case scenario? People who were willing to go to Sears specifically for its Kenmore brands now have one less reason to visit the store, or even the online store.

Clearly Sears is struggling. But they do have some valuable name brands. The best of those was Black & Decker, which sold this year for $900 million, down from the original $2.2 billion that was being considered. With Kenmore being another leading brand name, why isn’t Sears trying to sell the Kenmore brand? Most likely, no one wants it. Which is just another in a growing list of bad signs for Sears.

Watch this video from iBankCoin.com about the Amazon Sears Agreement to sell appliances online:

Ignore the hype around the deal. Expect shares of Sears Holding Corp. (SHLD) to continue DOWN.

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The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


 

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Bankruptcy

Puerto Rico’s Bankruptcy Pits Wall Street Vs. the U.S. Government

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Puerto Rico is out of money. And not just out of money, but in serious debt, owing $73 billion to many Wall Street companies after years of investment in the territory by Wall Street. What happens when a territory defaults? It’s not a country that can give away its assets — Puerto Rico is a U.S. territory and thus falls under U.S. law. And as the U.S. government is wont to do when big businesses are facing trouble, Congress is bailing out Puerto Rico with a special type of bankruptcy protection. Who is most affected by the news?

What’s Next for Puerto Rico?

How does a U.S. territory end up pitted against one of the world’s biggest financial institution? In the case of Puerto Rico, through bonds. For years, Puerto Rico offered high yield bonds which brought in hedge fund and mutual fund managers who viewed the territory as a safe bet due to tourism and being part of the U.S. economy.

Puerto Rican Flag | Puerto Rico's Bankruptcy Pits Wall Street Vs. the U.S. Government

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So what happened? Well, investors assumed that the island’s financial difficulties and economic issues would be solved at some point. Unfortunately, that’s not the case. Now, those bonds have come due, to the amount of $73 billion, and Puerto Rico just doesn’t have the money to pay up. To make it relative, the city of Detroit, which is in serious financial trouble, owes about $18 billion. Out of that $73 billion debt, about $12 billion is insured, meaning that debt falls on bond insurers who backed Puerto Rico bonds. Puerto Rico then has to pay the insurance companies back, adding them to the list of debtors waiting to be paid.

Wall Street Bull | Puerto Rico's Bankruptcy Pits Wall Street Vs. the U.S. Government

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Who are these other companies? Big Wall Street names including:

OppenheimerFunds
Franklin Templeton Investments
Aurelius Capital Management

Watch this video from Wochit News about Puerto Rico’s bankruptcy:

What’s next? Puerto Rico goes into Title III court-supervised negotiations with the hedge funds to try and settle. But the fact is, that’s not going to amount to much. The government will push for debt restructuring and spending cuts, but the island is poorer than ever, with a dwindling population. The island will settle with Wall Street companies, who will then collect from the U.S. government and write down the rest for huge tax breaks. Puerto Rico will have to tighten its belt, but will survive with the help of the U.S. government’s protection and bailout.

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The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


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