Amazon (AMZN) has made a big bet on robotics, particularly in its warehouses. However, with it's agreement to purchase Roomba-maker iRobot (IRBT), their robots could be coming to your home too. Jason Del Rey, Tech Business Journalist and Author of Winner Sells All: Amazon, Walmart and the Battle For Our Wallets, says the acquisition "has a lot to do with Amazon's intent and play to own as much gadgetry and robotics around the home," highlighting it's Alexa products and Ring acquisition.
When it comes to how to play the robotics space R "Ray" Wang, Constellation Research Principal Analyst and Founder recommends stocks like ABB (ABBNY), Fanuc (FANUY), and SMC Corporation (SMCAY), saying all three are leaders in the space that are publicly traded.
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ALEXANDRA GARFINKLE: How much do you expect Amazon's margins to improve in its retail business over time due to these robotics?
R WANG: No, it's a great question. And Jason's right. It's going to take some time. But we're talking about the ability to take these margins from 14.5% to the high 30's in the future. And that's coming from labor savings. That's coming from the fact that you have less errors. That's also coming from the fact that you got faster, better, and cheaper all-in-one opportunity.
ALEXANDRA GARFINKLE: Now, Jason, there are a lot of numbers that we don't know. But there is one that we do. And that's 1.7 billion. That's the amount that Amazon is looking to spend to buy Roomba. Now, what is your sense of the depth of Amazon's ambition in robotics? Is it to make its way all the way into our homes?
JASON DEL REY: Yeah. So my opinion on that acquisition is that it has just a lot to do with Amazon's intent and play to own as much gadgetry and robotics around the home. So everything from Alexa to their Ring acquisition years ago to the Blink Security acquisition, and now Roomba. So I see it in sort of that same play, you know, in your home, yes, you may be on your phone, but you're interacting with all sorts of technology and automation. And they want to be the number one player there.
Is there a chance some of the technology from that acquisition could help robotics and automation in other parts of Amazon? Perhaps, but I don't think that's the main play here for Amazon.
- Well, Jason, I know you know that space so well. But Ray, I want to bring you in on Amazon's overall strategy to improve margins, because robotics is just one small slice of that pie. What else can you tell us about Amazon's overall strategy to bump up returns?
R WANG: Yeah. If you think about what's going on here, I mean, there's a labor cost that's driving everything. And so anything from autonomous vehicles, anything from be able to do pick, pack, and ship. Really what you're trying to do is figure out how to solve the supply chain and logistics aspect. And the more you put automation, the more you put AI in place, it allows you to go from human scale to machine scale.
And that's really why it's so important to be able to actually think about, right, every process, every opportunity for automation. And of course, it does take a lot of time, like Allie was saying, because to get from 80% to 90%, that's as just as hard as it is to get from 90% to 95%. And each of those incremental improvements just as a result of time and iteration.
The other piece that's actually you're seeing is that's just the back end of the operations, the front end of the operations are coming from AI and getting better understanding of what customers want. And so if you get the demand and the supply together and you shape that properly, you can actually improve margins. You can reduce the number of returns. And you can actually get better at pricing.
- So Amazon, obviously, isn't the only company that has access to the tools that you're talking about. Jason, I think a lot about a company like Walmart heading into earnings this week, the biggest grocer in the country. To what extent could Walmart leverage robotics either through innovation or acquisitions like we've seen to compete with an Amazon?
JASON DEL REY: Yeah. I think the important thing for a company like Walmart is to use robotics, you know, to increase the advantage that they may already have over more pure play e-commerce players like Amazon. And that's really the immediacy of their stores, the ability to order and pick up the same day or have delivery from stores the same day.
And so they bought a company called Alert Innovation. They have a system called Alphabot. That is a retrieval and-- a storage and retrieval system that is built onto the side of a store to help workers more quickly pick and pack orders that can be either picked up or delivered that same-- very same day. And so this is a huge opportunity for them. They need to invest heavily.
But yet, you know, they don't have the margins of an AWS helping them. They're starting to build an advertising business that has great margin, but it's much smaller than Amazon. So it will be interesting to see how aggressively they can spend to ramp up.
- What would you say are the publicly traded robotics companies that investors need to be looking out for?
R WANG: Yeah. There's three that I look at. And I think ABB is one there they've been leading in this space for quite some time. Fanuc is another one where you're actually seeing a lot of automation, not just in warehouses, but also in manufacturing. And also SMC, SMC Corp. These three companies are leading in the space. But more importantly, these are publicly traded companies. There's also a number of companies that are not publicly traded that are actually have a lot of innovations in that marketplace.