Welcome to the Gilded Age of digital disruption where wealth, influence, and power are radically shifting to new players upending traditional business, economic, and social paradigms.
Giants Eating the Competition
We’ve often discussed the disruption in retail as part of seven megatrends that will impact the world for decades to come.
The companies leading this charge, as Scott Galloway identifies in his must-read book, The Four, are Amazon, Apple, Facebook, and Google, along with a handful of smaller companies such as Uber, Tesla, Airbnb, and Netflix.
“Every one of these companies are behemoths, similar to … the titans of the early 20th century,” Puplava said. “We had Standard Oil in petroleum, JP Morgan in banking, Carnegie in steel, and we had Ford when it came to automobiles. These were tremendous companies.”
Due to the size and dominance of their respective industries, these companies—and the people that owned them—became part of a Gilded Age of American wealth and power.
We’re returning to something similar, Puplava stated, as the big four each race to reach a market cap of $1 trillion.
“Each of these companies are worth more than a handful of their competitors,” Puplava noted.
The best example is Amazon, with a market cap dwarfing all of its competitors. It’s worth more than Walmart, Costco, and many other retailers combined.
Additionally, these companies aren’t just dominant in terms of market caps, but how few people they employ versus traditional companies.
For example, these four companies represent $2.5 trillion in market value. Combined, they employ 418,000 employees. Take Facebook, with its $501 billion market cap and only 17,000 employees, versus another media company, such as Disney, with a market cap of $150 billion and 185,000 employees.
“The larger wealth that we see in these companies is concentrated in fewer and fewer hands, with fewer workers making their founders enormously wealthy,” Puplava noted. “These people are some of the richest people on the planet.”
Looking at Amazon’s stock valuation compared to its competitors, it dwarfs any other retailer. Amazon’s stock price in the last 10 years is up 1900 percent. Compare that with Sears, which is down 95 percent, or JC Penny, down 83 percent over the same period. The story is similar with almost all other large retailers, Puplava noted.
Amazon has been able to reduce its overall costs substantially versus the competition. One of the advantages of e-commerce is you don’t have to spend as much capital on storefronts.
“They are dominating the retail space,” Puplava noted. “Seventy percent of the GDP in the United States comes from consumption. They’re taking it and making it effortless.”
What’s more, Amazon isn’t just disrupting retail, but also what were once thought to be invincible brands.
With 55 percent of the American public on Amazon Prime and the transition from one-click shopping to voice shopping via Alexa, we’re seeing Amazon move into its own in-house generic brands.
“It’s kind of like going into a store and buying the store brand, which is cheaper,” Puplava said. “This is eroding the once insurmountable moats that were protecting a lot of these well-branded companies.”
This is especially amazing because Amazon is not particularly profitable. In its 20-year history, Amazon has only made a little over $5 billion, mostly in the last couple of years, Puplava said. In terms of its stock and investors, Amazon has very successfully supplanted making profits with a story for growth.
Distribution and Transportation Disruption on Deck
Amazon is also looking to reduce its substantial fulfillment costs as it continues to disrupt grocery models, apparel, and transportation. This is likely the reason for its purchase of Whole Foods stores, which will become distribution centers as Amazon moves to cut fulfillment costs.
With Amazon Go, we are seeing the arrival of employee-free grocery stores where customers walk in, fill their carts and pay via an app automatically. There are no checkers or stockers.
Amazon is also building its own fleet for transportation. We’ll also begin to see driverless cars and drones fill out its fulfillment model.
“Amazon’s Alexa is killing the moats around brands with Amazon Basics, and soon, grocery store chains will change tremendously,” Puplava said. “There’s such a disruption that’s coming to the assault on brand monopolies and moats, that even stores and companies as big as Proctor and Gamble may soon buy their own grocery stores to get their brands displayed.”
The Social Model Is Changing
The concentration of wealth in fewer hands is already underway. This small handful of companies has totally upended almost all areas of our economy. Transportation is being automated. News and advertising are diverting to new platforms, and technology is changing the world in ways we can’t imagine yet, Puplava noted.
As a result, a number of jobs are going to disappear, and not just in retail and manufacturing, he said. We’ll also see white collar jobs disappear.
Not only do these companies have massive market capitalizations, but with fewer workers, the profits accrue to the owners and managers.
“In many ways we’re moving closer towards a 21st century version of feudalism, where we’ll have lots of lords and nobles, but a lot more serfs,” Puplava said. “Technology is displacing a lot more workers than the jobs it is creating. It’s only beginning, and it’s also accelerating.”
Article by Financial Sense