| Reason #1: Amazon’s Margin Barrier The first segment is Amazon direct sales, wherein Amazon funds, acquires and warehouses its own inventory, then sells and ships it to consumers via UPS, drone, carrier pigeon, native bearer, or whomever. This is the Amazon segment that’s been slaughtering brick-and-mortar retail. It’s easy to see why, considering Amazon is selling the same products as Walmart, or Target, or Macy’s, or Home Depot at prices that have its onsite competitors contemplating the abyss. This low-margin strategy, however, is bounded at zero. Once you slip into negative margins, the faster you sell, the faster you go broke. Yes, Amazon has valiantly attempted to lower its own costs of logistics and shipping. But Amazon’s operating margins on its own retail sales appear never to have gotten much above 2%. There is some guesswork here because of how Amazon consolidates its financials. Still, we think 2% is a reasonable, even generous estimate. Bottom line: We think 2% is about as close to zero as the firm can risk. Visionary George Gilder Sees Good News Ahead... Reason #2: The Marketplace Boom — and Boon Amazon Marketplace is the segment in which third party sellers pay Amazon to use its sales platform, and even its warehousing and shipping systems to sell their own wears. And Marketplace has been on a tear. Once an afterthought, the Marketplace business is far more profitable per dollar of revenue than direct sales, and it now supplies more of Amazon’s bottom line. How does that lead to growth for brick-and-mortar? First marketplace is less of a threat to mainstream retail — onsite or online — because most items sold on Marketplace aren’t really mainstream: they are “long-tail” or at best “medium-tail” products that sell in relatively low volume. You won’t find many of these items in your local Walmart To the contrary lots of the strongest Marketplace merchants are small-to-midsize boutiques that sell both onsite as well as online. To put it another way, Amazon now makes most of its money helping those small to medium stores increase their revenues. Yes, in theory Amazon could use its profits from Marketplace to do even more price cutting on its direct sales side. But it won’t. Smart companies try not to compete with their customers. And going by his annual letter to shareholders, Jeff Bezos finally has realized that his best customers are not consumers but fellow merchants. Bottom line: As the Marketplace revenue continues to grow — and Amazon’s margin pressure levels off —hybrid online/onsite merchants may not be quite ready to surrender all that retail real estate to the rock quarries just yet. More anchor stores may die, and malls may get even more boutique-ish (like online retail itself) but they aren’t going away. Amazon itself will increasingly function less like an online store and more like an online mall. Does that mean it’s time to invest in brick-and-mortar retail like our wealthy friend suggests? Well, like we said our friend is both rich — which means he can take a lot of heat — and smart so he is probably doing stuff we would never try, like hedging debt against equity. That way he can make money even if a company like Simon heads into bankruptcy. Personally, our policy is watchful waiting, with the emphasis on watchful. Today’s Prophecy: Five years from now it will be hard to remember we all once believed malls were dead. See you at the mall. 
Richard Vigilante
Lead Analyst, The George Gilder Report 
Steve Waite
Analyst, The George Gilder Report P.S. Are you too late to get rich off of the 5G revolution? You may have missed the boat. At least, missed enough of it to make a fortune. However, that doesn’t mean you’re out of luck entirely. Because I believe there is another opportunity, one that could be 3x as big. I'm calling it “15G” — click this link for more details. | 
Dear Daily Prophecy Reader,
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