Business

Amazon is currently king of the hill, but will it face contention from two old rivals?

For decades now Amazon has dominated the e-commerce space and the cloud in the US market. “Amazon doesn’t worry about anything that anybody else does, ever,” said Jon Reily, an e-commerce strategist at Publicis Sapient. “Amazon doesn’t look quarter to quarter or year to year – they do what they are going to do.”

It may seem that Amazon has nothing to worry about, but strong second-quarter earnings results from two of their old retail rivals may give Amazon cause to start looking over its back.

The Competition Continues

The two rivals are no other than Target and Walmart, who are quickly catching up in terms of updating their services to cater to the modern shopper. Their goal, to offer a seamless experience both online and in their thousands of physical stores, in order to drive strong sales and profits.

On Wednesday, Target reported second quarter adjusted earnings of $1.82 a share which soundly beat forecasts of $1.62 a share. Their physical store sales also rose 3.4% ahead of estimates of 3% growth. Target attributed half of this growth to their order pick up, drive up and Shipt services. Online sales also surged 34% during the same quarter.

Target has been stepping up their game, remodeling hundreds of their stores and expanding their grocery departments. This results in increased foot traffic, which takes away from online shopping on Amazon.

In a conference all with analysts, Target CEO Brian Cornell said, “We are seeing our Target guests visit us more frequently, shop more categories. They are enjoying the changes we have made in the store experience, but they are also taking advantage of the convenient fulfillment options that we are offering.”

If Wednesday’s results are anything to go by, Target will be on schedule to see its adjusted earnings exceed current expectations of $1.16 per share to $1.24 per share.

Walmart also saw substantial growth this quarter.

Their earnings exceeded forecasts by $0.05 per share, as well as increasing in-store sales by 2.8%. Their online sales surge was much more impressive, registering an increase of 37% at Walmart US and 35% at Sam’s Club.

Walmart CEO Doug McMillon believes that the company is well positioned to use their vast network of supercenters to deliver an omni-channel experience for their clients.

“More than ever, we’re innovating across the business. We’re experimenting with emerging technologies to improve store operations and reduce friction in our customers’ lives,” McMillon said. “The initiatives we have underway provide extended access to our brand and position the company to earn a greater share of our customer’s wallet over time.

The Future of Retail

The pool of online shoppers is immense, and provided that retailers offer the stuff that people want they stand to profit. The internet stands to be a goldmine for retailers for years to come.

What is happening at Target and Walmart are two well-capitalized companies with the best organizational talent they’ve had in years. Their talent is moving quickly to leverage their respective companies to get products and services to consumers faster than ever. They are anticipating the future of shopping, instead of playing catch-up to Amazon like they have done for decades.

Their past reactionary mistakes as well as the smartphone allowed Amazon to take root. Now it’s time for Amazon to realize that Target and Walmart are rising legitimate threats with strategically placed stores and the talent to match. They need to get serious about opening physical brick-and-mortar stores offering more services and also clean up their cluttered website if not their competition will quickly close the gap.

There is an option to opt out, but most of you won’t like it.

In the past few years, Chase has ramped up the attractiveness of their credit cards, providing their cardholders with a smorgasbord or perks and points. This lured in many new applicants, and led to Chase being the undisputed front-runner in the credit card industry.

However in recent months, Chase customers started receiving emails stating unexpected changes to their user agreements which stripped their right to sue Chase, should they choose to.

The bank updated all their credit card contracts to include a “binding arbitration” clause, which requires customers who have a dispute with the bank to settle through private arbitration, which essentially prevents the formation of class-action lawsuits.

Instead of joining a class action suit, consumers with disputes would have no recourse but to take their chances in a private lawsuit, which experts say heavily favor the corporations and not the consumers.

The bank is updating all but one class of their credit cards, the AARP line, based on their existing contract with the group.

The revised agreement states that “With arbitration, you cannot go to court, have a jury trial or initiate or participate in a class action for your disputes with the bank. In arbitration, disputes are resolved by an arbitrator, not a judge or jury, and procedures are cimpler and more limited than rules applicable in court.”

To opt out of the agreement, cardholders must send a physical letter to Chase by August 9th with account numbers, addresses and signatures of all the cards they own, explicitly stating that you “reject this agreement to arbitrate”. These letters must also be mailed to Chase at PO box 15298, Wilmington, DE 199850-5298.

As part of a strategy, Chase is not allowing their customers to opt out online despite the fact that they tout their online services as well as their mobile apps as being so convenient you can apply for a credit card, cancel cards, pay off card balances, and receive paperless statements online.

Chase benefits from this new agreement as it shields the company from class-action lawsuits. In a statement released to Yahoo Finance, Chase states that there is no online version of this opt out agreement as the company wants “to make sure we captured our customers’ preferences accurately.”

Chase cards used to have these provisions and actually dropped forced arbitration clauses in their agreements in 2009 after a settlement.

A Chase spokesperson who declined to be named said “Our experience in Consumer banking has been that it’s often faster, easier and less expensive,” referring to forced arbitration.

If they decide to unleash this weapon, the US could face severe repercussions.

There is one weapon that China should refrain from using in the escalating trade war with the US. One that could have significant blowback not just on the US market but also their domestic market.

The doomsday scenario is when China decides to start selling Treasuries which is what they currently use to benchmark their currency the yuan. Kit Juckes, strategist at Societe Generale says that would be the ultimate weaponization, after China shocked financial markets on Monday by devaluing the yuan.

Trading blows

This devaluation came on the heels of Donald Trump announcing 10% tariffs on $300 billion worth of Chinese goods on September 1. The US Treasury Department also labeled China as a currency manipulator.

In some circles on Wall Street, China’s currency manipulation was labeled a weaponization. As they are currently the largest holder of US debt at $1.1 trillion, any amount of dumping could send US interest rates through the roof. Putting it simply, the higher the supply of Treasuries on the market, prices go down, yields go up.

As a result. the higher interest rates would naturally raise borrowing costs for the US and negatively impact its investment grade credit rating.

On the flip side, China would probably see a flight of capital out of its domestic markets, leading to higher borrowing costs and a credit rating downgrade as well. All in all, it would be a no-win scenario for all parties involved.

Unlikely Moves

Juckes mentions that headlines involving China’s US Treasury pile are inevitable, but it is most likely that they would stay with it’s current Treasury holdings. Two reasons support this theory, one being that China has nowhere to put the cash it raises by selling US debt.

The other reason is that it would not be in China’s best interest to create global market instability at a time when it is trying to be taken more seriously by the rest of the world.

Possible Solutions

As the US-China trade war escalates to a currency war, the US Treasury’s next step is to enter negotiations, either directly with China or indirectly through the International Monetary Fund (IMF). Senior China Economist Julian Evans-Pritchard theorizes that China is unlikely to come to the table to engage with the IMF, which will probably lead to US-China relations souring even further.

What will probably end up happening is Trump placing more and more tariffs on Chinese imports, and China retaliating with more currency depreciation. It’s unlikely that a solution will arise anytime soon.

President Trump slams China early Monday morning for allowing the yuan to tumble below a key level.

In a Twitter post, Trump called it “currency manipulation”. He continued, “Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

Trump’s remarks lambasting China come after the yuan was weakened past seven per US dollar for the first time in over a decade. This was speculated to be in apparent retaliation to Trump escalating the trade war. Global equities fell as the yuan tumbled further.

In an unprecedented move last week, Trump announced that he would be slapping a 10% tariff on $300 billion worth of Chinese goods starting September 1. This was after representatives from both countries met for in-person trade talks for the first time in months.

In previous years, the People’s Bank of China would step in to prevent the yuan from dropping below the psychological level of seven per US dollar. Julian Evans-Pritchard, senior China economist for Capital Economics opines that the PBC was being mindful of the headlines that it would create on previous occasions. But this week’s retaliatory move might indicate that China is losing patience.

A weaker Chinese yuan would make goods from the country cheaper and more attractive to foreign buyers. This would exacerbate the divide of the US trade deficit even further. In recent months, Trump has demanded that the Federal Reserve devalues the US dollar to make America more competitive with other countries who he accuses of unfairly devaluing their currencies against the US dollar.

Trump has petitioned the Federal Reserve to lower the benchmark interest rate to weaken the dollar’s relative valuation. Federal Reserve chairman Jerome Powell hit back saying that US central bankers “certainly do not target the level of the dollar and that the Treasury Department is responsible for exchange rate policy – full stop.”

During the course of his term, Trump has repeatedly accused China for allegedly undervaluing its currency and labeled the country a currency manipulator. Earlier this year however, Trump backtracked on those opinions and decided not to label China or any other country a currency manipulator, but placed the country on his watch list for potentially unfair currency practices.

In a statement released Monday , the People’s Bank of China denied any intentional weakening of the yuan as retaliation against the trade policies of the US. They went on to say that “they would not engage in competitive devaluation or use the exchange rate as a tool to deal with external disturbances such as trade disputes.”