Retail Stocks Most/Least Vulnerable to Amazon

Our friends at William Blair & Co. have updated their rankings of retail stocks most vulnerable to the competitive assault of Amazon (AMZN), and in our view you’d be nuts to invest in a retail stock these days without first considering the company’s ability to fend off the giant online merchant.

At YCharts, we’ve dubbed Amazon the Suicide Bomber of Retail because, by slashing prices, it trashes the profits of competitors and also its own bottom line, as we see here in profit margins for Amazon, Best Buy (BBY) and Barnes & Noble (BKS). Much of YCharts’ recent Amazon coverage focuses on these competitive issues.

AMZN Profit Margin Quarterly Chart

AMZN Profit Margin Quarterly data by YCharts

(Sales estimates for current fiscal year is one of many forward investment research tools available on YCharts.)

The Blair analysts, led by Mark Miller, regularly gauge product overlap between Amazon and other retailers (both in their stores and on their Web sites), the competitive pricing on these items, and the shopping experience (in-store or online) that might be compelling enough to make consumers want to buy from retailers even though they can get stuff cheaper at Amazon.

According to the Blair analysis, retailers that are most vulnerable to Amazon have been more likely over the past year to issue revised (and downward) guidance on revenue and gross margin. Amazon-resistant retailers have fared better.

The Blair analysts, by the way, believe investors increasingly watch gross profit margin at Amazon, in addition to revenue growth, for signs of success in the company’s business model.

Here we see how sales estimates have been revised downward during 2013 for four of the five companies Blair currently counts as most vulnerable to Amazon: Best Buy, HHGregg (HGG), RadioShack (RSH), Staples (SPLS) and Office Depot (ODP).

BBY Sales Estimates for Current Fiscal Year Chart

BBY Sales Estimates for Current Fiscal Year data by YCharts

And here we see positive revisions to 2013 sales estimates among the five least-vulnerable-to-Amazon merchants on the Blair list (excluding grocery retailers, which have great built-in defenses): Five Below (FIVE), T.J. Maxx (TJX), Tractor Supply (TSCO), Family Dollar (FDO) and Cabela’s (CAB).

FIVE Sales Estimates for Current Fiscal Year Chart

FIVE Sales Estimates for Current Fiscal Year data by YCharts

Best Buy, for instance, has an 81% overlap of products with Amazon, and Amazon charges about 15% less for these products. That’s extreme vulnerability. T.J. Maxx, which stocks a lot of no-name merchandise and doesn’t compete aggressively on the Web, has just a 19% product overlap with Amazon. And on the products they both stock, T.J. Maxx is considerably cheaper. That’s being Amazon-resistant.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.



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