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LAURIE GOOCH, San Clemente
Diversification is a risk management strategy that assigns capital to a variety of investments to better absorb the shocks of any financial disruption. Particularly, to minimize unsystematic risk, risk related to a particular company or market segment.
If we apply the strategy of diversification to our town’s economic development, how can we absorb the shocks of financial disruption if we invest 20 acres in Amazon, an embodiment of the unsystematic risk?
Amazon has experienced unprecedented consumer demand due to the pandemic. In response, Amazon has “tripled its suburban logistics nodes in Southern California from nine to 32 in 2020,” the Orange County Register reported in March. Last-mile delivery stations exist nearby in Anaheim, Buena Park, Cypress, Irvine (two locations), Mission Viejo, and Santa Ana (two locations).
One day, though, the pandemic will end. Interactions will be real, rather than virtual. And when this happens, what happens to Amazon?
We catch a glimpse in a July 30 Forbes article that quoted Morningstar analyst Dan Romanoff, who stated: “Consumers’ online shopping levels are returning to more normal levels as they shift some spending to other entertainment sources and offline shopping.”
According to the same report, “Amazon posted second-quarter revenue … of $113.1 billion … falling short of average analyst expectations totaling $115 billion.”
How necessary will Amazon’s “tripled suburban logistics nodes” be when consumer demand returns to normal levels? Shifts to embrace future innovation? How necessary will an Amazon Distribution Center in San Clemente be?
“Meanwhile, the company continues to add capacity (and costs) at a breakneck pace in order to meet consumer demand and one day delivery,” Romanoff said in the article.
With pandemic-accelerated capacity cost debt and normal levels of consumer demand, how well will Amazon absorb the shocks of financial disruption caused by near-term, post-pandemic in-person life? By long-term future innovation? How well will an Amazon Distribution Center in San Clemente be?
Moreover, if we invest our 20-acre site in Amazon, we do not have any acres left to invest in other companies. We cannot diversify.
Diversification is a strategy to minimize unsystematic risk, the very risk Amazon poses to our town. Our city leaders, if wise, will adopt this strategy and turn down Amazon’s proposal.