Okay, to make this clear: the company that I am talking about earned a 67% return on investment...does this sound high or low level of profitability? Margin tells you nothing, businesses are not valued on margin but by return on capital (of which margin is a component but not the only component).
Also, your points about margin are all wrong...supermarkets control both the price they charge and the price they pay. To give a simpler example (you are confusing lots of things like having low-paid staff) is HFT a profitable business? Margins are the lowest of possibly any business known to man, these firms are usually making significantly under 1% or even 0.01% on each trade...that ignores two things: they don't take an opportunity unless it is profitable (gas stations are another example, margins are low but essentially fixed), and they turn their portfolio over thousands of times per day. If you earn 0.01% that isn't a lot, if you earn 100 000x per day then that is very profitable.
And I explained why retail does. If retailers aren't necessary, why is Amazon so large? Are Chinese factories just choosing to set fire to money? You explaining it does not make it true.
Again, Trader Joe's is a perfect example. Because people care about price does not mean they don't care about anything else. This is the mistake that MBAs at retailers made, they chose to compete at a game they would lose. Again, the reason why consumers perceive their choices in that way is because that is how retailers have chosen to compete. There are lots of other models (you named one, Trader Joe's grew by competing on price AND also choosing to narrow their range significantly...the same model was actually used by dollar stores, they actively chose to run against competitors who tried to carry everything...competing on price does not mean that you have to compete on price alone).
AMZN hasn't built out close to consumers fast enough (I don't necessarily mean last mile here). Chinese online retailers, as an example, were able to same-day delivery, do lots of volume, hold lots of SKUs but do this with less space because they have a denser network (and denser population).
This was done for rational reasons (partly US population density, zoning issues) but, I think, the mistake was motivated largely by going into third-party in the way they did, which necessitated tall and narrow distribution. And I think it is going to be difficult to make that space economic if third-party softens (imo, inevitable because they went for a free-for-all, which can only devalue your brand over enough time).
Maybe, the position in the US is defensible. Outside the US, particularly in Europe, I think it is unrecoverable (this is partly my biased experience, AMZN has one of their largest warehouses globally near me, and the economics make zero sense given population density). So I think you will see companies that already have very tall and narrow distribution in some verticals compete within third-party (I am seeing this locally, apparel retailers suddenly becoming platforms), and then the short and wide distributors will cut them to pieces with less SKUs/faster delivery/more control over products (if you look WMT, their failure online is unbelievable...they probably had better infrastructure than AMZN until very recently, and maybe still have an advantage because of their locations).
EDIT: I will add, this is measurable in terms of a rather standard retail metric: sales per sqft of warehouse space (inc. system/third-party sales). Right now, I think they are in a self-reinforcing cycle but if this softens, all the strengths become weaknesses (again, quite like standard retail). But if you see sales per sqft keep trending up for the next five years then I am wrong.
Margins are the difference between what it cost, and what you earned. But what I would call "profitability" is your actual return versus capital deployed.
For example, I know a retailer that earns a 1% margin...terrible? No. They turn over their inventory every week (roughly), so they earn that 1% 56x times a year...that is a very profitable business. Similarly, I can earn a 90% margin but if I can only turn my assets over every ten years (some business are like this) then that business isn't very profitable.
Retail provides massive utility. Retail is the link between producers and consumers. Most producers do not have the interest or the ability to sell direct to consumers, it is a totally different (and very expensive) business. And barriers to entry are significant: retail is complex, there are huge fixed costs, and you own the link to consumers (that is why distribution is where all the profit is within most value chains). The internet does make information easier but retailers also do that job, Amazon doesn't but product selection a competitive advantage (most consumers trust retailers more than they trust brands...Amazon's return policy is a prime example, retailers need trust). And there is a difference between providing information and distribution: if that wasn't true Consumer Reports would be the biggest retailer in the world (I actually agree with this a huge amount though, this has never made sense to me...but trust is complex, humans aren't totally logical, and the system we have is pretty good).
I am not clear what your point is. But one, small proportions are fine, Ferrari doesn't sell to everyone and they do okay. Restoration Hardware is a more modern example. Two, your point about those stores is my point about why distribution is profitable. Three, and the point I made earlier is that most of those stores (but not all) have essentially become derivative of each other...and that is why physical retail isn't competitive. Most physical retailers essentially threw up their hands, and decided to compete on price alone which suited online retailers very well (as I said though, this happened when retailers took more control over supply chains and started sourcing directly from factories in China, and this largely started before Amazon existed but accelerated hugely in the 2000s).
I can consolidate these points by mentioning Restoration Hardware again: no-one knew they needed Restoration Hardware before Restoration Hardware existed, their model is ludicrous, it makes no sense...but it is also very successful and gives consumers something they cannot get online. If you asked consumers what they want before cars were invented, they will tell you they want a better horse (btw, Trader Joe's is also the perfect example of this...they did almost everything you shouldn't do in retail, that is how they succeeded).
I come at this from the other point of view: I used to work as an equity analyst (analysing companies), and I ended up gravitating towards retail.
The issue, as you imply, isn't only that Amazon is very good but the experience at many physical retailers is very poor. It is difficult to simplify this down to one thing imo.
Managers in physical retail are unusually bad. Retail used to be ludicrously profitable, so most companies have a dense layer of MBAs who have no real idea how to adapt or innovate.
I recently read The Secret Life of Groceries (not great tbh, but did cover some useful themes) and towards the end of the book (paraphrasing), it is framed as grocers all "compete" to be the best version of the same thing. They strip all the difference out of their product, usually compete solely on price, and (ofc) someone eventually comes in and undercuts them. That is a failure of incentives and management.
This varies by industry, and is not limited to incentives/management. One reason for the lack of innovation in sports apparel is that there are basically two suppliers, and one of them is moving heavily into DTC. Every sportswear shop is just a Nike distributor, so there is no real differentiation there (the only innovation in the sector has been distributors moving up the chain like Sports Direct and Decathlon in Europe). So the reason why you can't find shoes cheaper is actually because of Nike, not distributors (and those distributors lack any capacity to innovate, management is mostly composed of MBAs who likely have worked at Nike or Adidas at some point).
But the solution is counter-intuitive: keep buying from Amazon. There is nothing structural or inevitable about Amazon's success (compare them with the large Chinese retailers, they actually look quite blundering and incompetent, they have made mistakes in distribution already that are going to choke them). Physical retail needs more innovation which can only come through firms dying, and entrepreneurs thinking about what consumers want (this happened with WMT, there was consolidation then competition as WMT got overrun by MBAs and they lost their edge...Tesco in the UK is a very extreme example of this too).
I wouldn't be pessimistic either: the distinction between online and offline retail really doesn't exist. Look at restaurants like CMG, they are taking most of their orders online...but that doesn't change the product. It is the same with retail: taking an order online doesn't change the fact that the retailer is holding some product somewhere, and is distributing that to you (this is the mistake that Nike is making, they are going into DTC thinking they just can just cut everyone out, and jam up prices...it is MBA, day one strategy, and idiotically wrong). The real difference with offline retail is actually the cost of property, which is going to narrow over time. Ofc, this isn't universal...some verticals like hardware stores are ready-to-go already, others like clothing probably aren't (there isn't much value-add at consumer contact, and they pay v high rents)...but the innovation will come. I don't think physical retail is dead at all though. If anything the weakness of physical retail is that MBAs stripped all the life out of it which left them open to competition from online. Online is just delivering the message that consumers have had enough.
EDIT: I will add that personally I think a lot of the stuff on Amazon is terrible. A lot of retailers in the 2000s were just innovating by going deeper into China, and closer to factories. Amazon just took that to it's logical conclusion. It works for some products, not for everything. Branded stuff also tends to be fake.
The same argument was used to stop embargoes against apartheid South Africa...that was somewhat explicable given the poverty of South Africa, using it for a multi-billion tech company. Interesting take.
You don't. The point is to charge based on risk. There is no sense in which you can transfer gains from one set of customers to somewhere else. The profitability of any group of customers depends only on the price you charge them.
And btw, lots of insurers specialise in pricing high-risk customers. If another insurer comes in and tries to subsidise low-risk customers using high-risk customers, then a specialist insurer just comes in and undercuts them profitably.
Even a low-risk customer becomes a bad risk at the wrong price. It is all about the price.
Do you gain more in expense reduction than you lose in loss increases?
By itself, the loss ratio tells you nothing because the pitch here is really that they can reduce expenses, not that they can reduce losses.
And I think the way they present this is slightly misleading. They only handle 1/3 of claims by computer in their entirety. The innovation is really on the front-end. And whilst this is probably a big part of costs, it isn't exactly huge. In addition, this is something that is fairly easy to replicate.
The specific claim made is: we have a "flywheel" (as ever, every company has one of these in 2020) whereby we use data to reduce costs and losses. This seems, from what I can see, false.
A question I have asked myself a few times as the guy who has to work out whether to invest in the guys hiring McKinsey: if you need McKinsey to do "technical" work for you then why am I giving you money?
Strategy is very useful...but, again, McKinsey know almost nothing about this too. In my experience, capital allocators are born not made. The idea that you can be a strategic genius without ever taking any risk yourself (i.e. the kind of person who goes to the colleges McKinsey hires from) is just wrong.
And the funniest thing about McKinsey is they are, apparently although not so much anymore, arch capitalists but largely exist to milk money from the principal-agent problem. McKinsey is the problem.
Your mistake is trying to "parse". I am sure the phrase has meaning - it, presumably, means take advice from someone with the same social status - but at any deeper level it is quite meaningless. Don't bother. It isn't worth it.
Also, your points about margin are all wrong...supermarkets control both the price they charge and the price they pay. To give a simpler example (you are confusing lots of things like having low-paid staff) is HFT a profitable business? Margins are the lowest of possibly any business known to man, these firms are usually making significantly under 1% or even 0.01% on each trade...that ignores two things: they don't take an opportunity unless it is profitable (gas stations are another example, margins are low but essentially fixed), and they turn their portfolio over thousands of times per day. If you earn 0.01% that isn't a lot, if you earn 100 000x per day then that is very profitable.
And I explained why retail does. If retailers aren't necessary, why is Amazon so large? Are Chinese factories just choosing to set fire to money? You explaining it does not make it true.
Again, Trader Joe's is a perfect example. Because people care about price does not mean they don't care about anything else. This is the mistake that MBAs at retailers made, they chose to compete at a game they would lose. Again, the reason why consumers perceive their choices in that way is because that is how retailers have chosen to compete. There are lots of other models (you named one, Trader Joe's grew by competing on price AND also choosing to narrow their range significantly...the same model was actually used by dollar stores, they actively chose to run against competitors who tried to carry everything...competing on price does not mean that you have to compete on price alone).