Daily Ticker

How Paper Towels Could Be Key to Amazon’s Growth: Will Lower Prices Follow?

The customer is always right.

Sounds trite and old-fashioned but that's the way Amazon (AMZN) founder and CEO Jeff Bezos has run his business since its inception in the 1990s. And while this laser-focus hasn't led to huge profits yet (the company does not regularly boast about its razor-thin profit margins or recent quarters where they've actually lost money), the promise of their future retail muscle has helped the stock flirt with all-time highs this year. It has also meant that its millions of customers can count on the company to try to undercut almost any competitor's price, every time.

Related: How Amazon's Mayday Could Change Your World and Disrupt Apple

Now Amazon is working with household products giant Procter & Gamble (PG) -- and will soon be partnering with Kimberly Clark (KMB) among others -- inside its warehouses and distribution centers to ramp up efficiencies in the transport and delivery of everyday goods like paper towels and toilet paper. They're using their own system called Vendor Flex to ship products directly from manufacturers to the people who use them. Here's how The Wall Street Journal describes the simple process:

"Each day, P&G loads products onto pallets and passes them over to Amazon inside a small, fenced-off area. Amazon employees then package, label and ship the items directly to the people who ordered them."

"This is one of the biggest growth areas for Amazon," RBC Capital Markets analyst Mark Mahaney told the Journal.

"What e-commerce is doing in general, and Amazon is at the forefront of this, is just making the whole system more efficient," says The Daily Ticker's Henry Blodget. He asks: why should P&G make the paper towels in one manufacturing facility, ship the product to a warehouse, which then ships to Amazon or to a store, when it could directly ship it to you right from the start?

Related: Amazon's Secret Plan to Sell You Everything!

Aaron Task points out that this is just the beginning. "Right now, only 2% of American households get their staples -- toilet paper, paper towels, etc. -- online, that's still $16 billion of revenue. So if they could just move the needle a couple percentage points, it's a potential big growth area for them."

Amazon had more than $60 billion in sales last year. If they can get a real grip on selling household products regularly to Americans, they could disrupt a company like Walmart (WMT) which is famous for its distribution efficiencies.

The goal for Amazon of all these partnerships and efficiencies is to offer even lower prices to you, the customer. If they continue to revolutionize the shipping and distribution process, well, that's good too.

"This is the thing that a lot of people missed about Amazon..." says Blodget. "There's no limit to what they can sell. So Amazon has broadened incredibly widely in terms of what it sells, it can also go incredibly deep into any category and sell any flavor of anything."

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