Amazon

Retailers need not face “Death by Amazon”

Australian businesses can be smart enough to actually use Amazon to make up a healthy portion of their revenue – but the smartest businesses will learn how to remain independent from the giant retailer by avoiding overdependence. Let’s see what we can learn from the global situation, especially from the US and Amazon:

Some retailers are not experiencing “death by Amazon” even though Amazon is affecting many companies such as UPS and FedEx, (by buying 20,000 delivery vans and 50 planes), Blue Apron (by acquiring Whole Foods), and Macy’s (through Amazon Wardrobe). Indeed, Amazon.com destroyed many bricks-and-mortar retailers because of its online convenience and lower prices and it remains a formidable and growing opponent. However, it has failed to kill Walmart and certain other retailers.

Amazon’ stock has been stagnant most of 2019 and it fell in value by up to 7% on the announcement of its third quarter results. Yet, stocks of retailers that are considered to be vulnerable to Amazon have been outperforming the its stock. Walmart’s stock grew by 24% in the last 12 months, Target by 37%, Costco Wholesale by 32% and Ross Stores by 16%. These companies are some of the 55 retailers are on Bespoke Investments’ “Death by Amazon” index published in 2012. They have core physical stores, a limited online presence and sales of third-party brands accessible elsewhere. These factors expose them to Amazon’s online competition and pricing. Indeed, dozens of companies in the index have lost more than 50% of their market value in the past few years but they have survived.

The “Death by Amazon” index was published in cap-weighted basis and equal-weight basis. Since February 2012, market-cap-weighted index has cumulatively gained 57%, the equal-weighted index has gained 21%, S&P 1500 has gained 167% while Amazon has gained 884%, according to Bespoke. In 2019, the cap-weighted index gained 8%, the equal-weight index gained 10.9%, Amazon gained 17.9%, Walmart gained 29%, Costco gained 49%, Target gained 72%, Dollar General gained 53%, TJX gained 34% and Zumiez gained 71%. These retailers are actually growing strong compared to Amazon! Bespoke says this is because the traditional retailers became cheap enough to attract value investors and profited from a market shift from growth/momentum to value.

The Amazon Survivors index is another Bespoke publication that includes retailers that appear to be immune to Amazon due to their brand equity and other factors. Some of them are Tiffany whose blue box is highly desired, auto retailers, car parts companies, and speciality retailers such as Home Depot, Tractor Supply, RH and Lowe’s. These companies have had their share of problems and some of them are ailing as home interest rates soared and as car sales declined but they are surviving. Bespoke believes that AutoNation will even do better. It holds a large inventory of used cars which will benefit from the slowdown in the sales of new cars, increased sales of parts and service. From July 2016, the Amazon Survivors index grew cumulatively by only 5.4% while Amazon gained by 145% in the same period.

Obviously, Amazon has not managed to kill all retailers. Some of the large firms that are backed by a lot of capital, are likely to survive the Amazon threat to retailers. What will happen in the future remains to be seen as Amazon continues its expansion and also improves its delivery services.

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Roland Bleyer

Mate produces well-researched content that is unbiased and balanced. Our research team is led by Roland Bleyer who regularly features in the media as one of Australia's leading experts in consumer finance. This year he has been featured on 7NEWS, News.com.au, Womens Day, The West Australia, SMH, Your Money, Channel 10 and many more. Roland's company is an Australian Credit License holder and he is an authorised credit representative. We rely on official government and bank sources as well as data released by Australia's leading comparison engines.

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