Amazon Case Study

                                  Amazon case study
Amazon history and Profile
Jeff Bezos founded Amazon in 1994 at the height of the dotcom frenzy. It began operations in 1995. Although it did not invent the internet, it had been one of the pioneering companies to maximize the use and power of the new medium. As such, it practically defined what the internet was and the whole idea of e-retailing or online stores. (Seattle Times, 2012)
Amazon is based in Seattle, WA, USA. It has 18 warehouses in the US and nine abroad. It also has six Software Development Centers in Europe, Asia, and Africa. The company employs about 97,000 full-time staff. (Company page)
Macro Economy
In the US, Amazon can expect the growth in sales in 2007. Similarly, the European Union is forecast a moderate economic growth, in spite of the United Kingdom’s exit from European union. Thus, the rest of the world is restricted as the general slowdown worldwide. Moody’s downgraded its rating for the industry from positive to stable. This means that growth will only be in the moderate range, similar to that of the economy. Global developments—such as Brexit and economic slowdown in Asia, particularly China—will not have much effect on the US retail industry. (Global Credit Research, 2016)
Industry Analysis: Five Forces
Industry rivalry
Rivalry in the retail industry is very intense. It is obvious that the industry includes almost any retail store, from small specialty stores to big warehouse discount stores. Online retailers offer practically all products that are available at bigger stores. Amazon is a sub-industry in itself, especially in online bookstores. Barnes and Noble is a competitor but specializes in brick-and-mortar sales. The industry includes some of the biggest companies in the US.  The top ten list include huge retailers and discount stores like Walmart, Kroger, Costco, Target. (National Retail Federation, 2015)
Threat of new entrants
In the brick-and-mortar retail industry, the threat of new entrants is low. The business requires huge economies of scale, and the good reputation as well as good discounting chain. While in the online industry, the threat is high.
Threat of substitutes
For the brick-and-mortar industry, the threat of substitutes is high, especially from online retailers. For online retailers, the threat of substitutes is weak, unless some new technology emerges come out.
Power of suppliers
The power of suppliers depends on the size of the company they may be dealing with. Their power is weak relative to the big companies like Walmart that practically dictate the prices to suppliers. Suppliers cannot do much else because a substantial volume of their sales come from these big companies. (Greenwald, 2005) The power of suppliers is strong relative to small retailers. Some suppliers can survive without the small retailers. Small retailers are the ones that seek to get hold of certain brands to carry in their stores. (Greenwald, 2005)
Power of customers
The power of customers is high. This is mainly because of the online business, so customers have a number of choices. The choices online are not only retailers in the US but from the best of the world.

Ratio Analysis

     Based on information released in Amazon annual report, we will analyze key ratios of Amazon from 2011 to 2015 to have a better understanding of how this company performed.

     Cash cycle of Amazon is the most important ratio we want to highlight here. Cash cycle measures how quickly a company can convert its products into cash through sales. Shorter cash cycle means the company has better liquidity.

     Amazon has negative cash cycle in past 5 years, which means that Amazon generates revenue from customers before it has to pay its supplier for inventory. From this perspective, we think Amazon has strong asset management and Amazon will benefit from paying less interest payment to suppliers. Although Amazon’s cash cycle become less negative in past 5 years, the main reason for this trend is increasing inventory period instead of decreasing payable periods. We think Amazon still have strong relationship with suppliers and will maintain negative cash cycle in following years.