Reports of retailers’ “death by Amazon” may have been greatly exaggerated.
Amazon.com (AMZN), to be sure, has crushed many bricks-and-mortar retailers with its mix of low prices and online convenience. And it remains a formidable foe. Investors will be looking for big growth numbers across its e-commerce, web-services, and other divisions when the company reports quarterly earnings this Thursday.
But Amazon’s stock has been a laggard lately: It’s flat over the past 12 months, compared with an 11% gain for the S&P 500 index (.SPX).
Some retailers viewed as vulnerable to Amazon, meanwhile, have been winners, handily outperforming Amazon stock. Walmart (WMT) is up 24% over the past 12 months. Target (TGT) has gained 37%, Costco Wholesale (COST) is up 32%, and Ross Stores (ROST) is ahead 16%.
These companies are part of a Death by Amazon index published by Bespoke Investment Group in both equal-weight and market-cap-weighted versions. The index consists of 55 consumer retailers with core physical stores, a limited online presence, and sales consisting mainly of third-party brands available elsewhere. Those attributes expose them to Amazon’s relentless online competition and pricing.
The Death by Amazon index has been a good proxy for the existential threat posed by Amazon. Scores of companies in the index have lost more than half their market value over the past few years. The market-cap-weighted index has gained a cumulative 57% since its inception in February 2012. Amazon is up 884% since then, while the S&P 1500 has gained 167%. The equal-weighted index is up just 21% since 2012, according to Bespoke.
The index has gained 8% this year on a cap-weighted basis and 10.9% equal-weight. Amazon’s stock, up 17.9%, is beating them both. But a few big-name retailers are outperforming, notably Walmart, up 29%, Costco, up 49%, and Target, ahead by 72%. Other retail stock winners this year include TJX (TJX), up 34%, Zumiez (ZUMZ), up 71%, and Dollar General (DG), ahead 53%.
Part of what’s happened is that traditional retailers got cheap enough that they started to attract value investors and benefited from a market rotation from growth/momentum stocks to value, says George Pearkes, macro strategist at Bespoke.
“Over the last year, there were a couple periods where value exploded and momentum got crushed,” he told Barron’s. “That tells us these stocks got beaten down, have value characteristics, and can really fly in certain conditions.”
Bespoke also publishes an Amazon Survivors index, consisting of retailers that the firm views as resilient to Amazon. These companies may be survivors because of their brand equity, such as jewelry seller Tiffany (TIF), which has made a mint off the desire for its signature blue box. Other survivors, according to Bespoke, include auto retailers and parts companies, specialty retailers such as Tractor Supply (TSCO) and RH (RH), and home-improvement chains Home Depot (HD) and Lowe’s (LOW).
Ironically, the Survivors index has trailed the Death by Amazon index over the past year. Partly that’s because auto parts and auto retailers are lagging as new-car sales decline, says Pearkes. Home-improvement retailers also make up a large chunk of the Survivors index, and they came under pressure as it looked like housing was going to be hurt by higher interest rates.
But many of Bespoke’s other survivors are ailing too. Chico’s Fas (CHS) has shed 51% over the past 12 months, Tile Shop Holdings (TTS) is down 49%, Camping World Holdings (CWH) has lost 57%, and Children’s Place (PLCE) is off 42%.
Bespoke’s Amazon Survivors index has gained just 5.4% cumulatively since July 2016. Amazon is up 145% since then.
One survivor that looks poised to break out, says Bespoke, is AutoNation (AN). Its large inventory of used cars could help insulate it from a slowdown in new-car sales, and result in higher-margin parts and services business, says Bespoke. Profitability may have bottomed for AutoNation, and lower interest rates may help car sales rebound.
Nonetheless, if there’s a message in all this, it’s that a few large firms—backed by plenty of capital—are likely to survive Amazon’s retail threat. For many others, the jury is still out.
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