DEATH OF PUREPLAY RETAIL

INTELLIGENCE REPORT DEATH OF PUREPLAY RETAIL INTRODUCTION

What About...? Amazon casts a shadow across any conversation regarding retail. Amazon’s value proposition is sales volume, not brand equity. To that end, one of the Seattle behemoth’s core competencies is a singular ability to raise capital without the expectation of profits. Moreover, the majority of the company’s operating income comes from revenue streams outside of retail, specifically Amazon Web Services, while the e-commerce business incurs shipping costs that are double shipping revenues. In sum, the company plays by a different set of rules in the public markets, creating the (fallacious) perception that pureplay e-tailing is viable. This report analyzes disruptive retail models that have emerged over the past decade, in an attempt to identify winning business strategies and the underlying consumer behaviors that have enabled them. By contrasting digital and retail KPIs for pureplay, evolved pureplay and omnichannel retailers, L2 attempts to illustrate how organizations can benefit by operating across multiple channels. Like the medium we are assessing, our approach is dynamic. Please reach out with comments that improve our methodology and findings.

Death of Pureplay Retail: Amazon Operating Income Millions of Dollars 2015 ■ Amazon Retail ■ Amazon Web Services

$1,705M

36%

64%

$993M

48%

52%

$706M

38%

62%

Q1 2015

Q2 2015

Q3 2015

Source: SEC Filings.

Regards, L2 & Simon Property Group

Bonobos ,” Business Insider, October 6, 2015.

2,000

1,000

Death of Pureplay Retail: Amazon Shipping Expenses Millions of Dollars Q1 2014—Q3 2015 ■ Shipping Revenue ■ Shipping Costs ■ Net Shipping Costs

$1,701 -$3,049

$849 -$1,829

$889

$1,048

$1,299 -$2,039

$1,399 -$2,340

$1,494 -$2,720

0

-$1,812

-$2,020

-1,000

-2,000

-3,000

-$980

-$923

-$972

-$1,348

-$740

-$941

-$1,226

Source: SEC Filings.

Q1 2014

Q2 2014

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

4

January 12, 2016