Whole Foods has prime real estate in every major US Markets cities- all with 20-30 yr leases and an additional 10-20 years in options on the leases- this alone is worth the 13.7B that Amazon paid for it. They will have instant access to millions of shoppers. $42 a share was way undervalued for the potential but it kept Mackey in the drivers seat for now so it's the deal they went with- Jana would have stuck it out if there was more upside. We are stuck with $42 a share so be it!!
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There's a vast oversupply of retail real estate in the US. The amount of retail square feet per capita is like double the next closest country's and almost triple the third place country. That's one reason why there's a retail apocalypse with all these store closings. Too many stores, too much space. Way too much. And if you don't OWN it, you can't redevelop it, and many leases prohibit subleasing because they're part of particular developments where there's a contractual obligation to continue operating as (for example) a GROCERY STORE. Result: The retailer is stuck.
I disagree since the leases themselves are way under current fair value and the locations are spectacular- remember real estate is location, location, location. Amazon could sub let the real estste and make money on that alone!
That's not accurate. Recent posts have revealed an essential issue, which is the cost of debt service, and it CAN'T be covered by having to pay big money to lease locations. That's called an EXPENSE because this company doesn't recognize the vast majority of its locations as assets. Dig this: A report 4 years ago in Seeking Alpha stated that at that time, the company owned only 13 of its locations! The firm uses what one could nicely refer to as "aggressive accounting" that does not put the value of its store leases on the balance sheet. It doesn't take a master's degree in accounting to understand that this means it is essentially RENTING that real estate. That means the company is hiding the real cost of its expensive locations in fine print, without properly subtracting the equity and boosting the liabilities needed to PAY for that real estate, nor depreciating the cost of its buildings as they age. Besides, in case you haven't noticed, we're in a retail apocalypse so there is no shortage of retail space. Space is vacated and leased every day. Amazon already has "access to millions of shoppers" and every major bricks-and-mortar retailer has "access to millions of shoppers." The issue is that other companies are doing a far better job figuring out how to operate EFFICIENTLY and serve our (former) customers, it's a low-margin industry to begin with, competitors aren't blinking one bit and Amazon's efforts in fresh food have been beyond underwhelming. Jana played its cards well, but that means nothing to Amazon. It's their mess now, and they'll have to deal with it.