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Is There Retail After Amazon (AMZN)?

March 20, 2018, 10:27 am

There’s no denying that online shopping has changed the world. Amazon (AMZN) is usually the first to come to mind, as it has disrupted everyday life category by category. But with AMZN already having grown into a $700 billion behemoth – now the second-biggest U.S. stock behind only Apple (AAPL) – it forces investors to either hold the established giant or hunt the next generation of disruptors on the horizon.

If the company keeps conquering retail categories, revenue can ramp well beyond current levels. U.S. grocery alone could one day become a $1 trillion opportunity for investors, with even a 10% share of that vast space giving the stock price enough juice to ride another 50%. Then there’s freight, logistics, inventory management, business intelligence and domination of the computing cloud that keeps smaller entities feeding into the Amazon universe.

Here’s where it gets a little tricky, though. AMZN is too overpriced right now and the smaller companies are still too small to invest in. The usual story moves straight from start-up to acquisition, without ever passing through the public offering stage, and as long as AMZN has competitors there will always be legacy retailers willing to pay cash for a hot website and new ideas.

At this stage, a lot of the sizzle driving old-school retail stocks like Walmart (WMT) is all about these infusions of outside innovation keeping them relatively relevant. It’s still a horse race whether conventional brick-and-mortar chains will learn from AMZN fast enough to survive, and that’s why the stocks are still in play. Mall retail learned from the collapse of bookstores and media chains.

Realistically speaking, all retail is hybrid retail now, with every brick-and-mortar purchasing decision at least informed by the presence (or absence) of online alternatives and vice versa. AMZN is coming offline into grocery stores and physical Amazon Go locations. Brick-and-mortar is pushing floor traffic to the site for payment and delivery.

That’s a good thing because pure online retail stocks are so scarce. We’re a long way from the e-commerce gold rush of 1999-2000, when hundreds of “web stores” emerged and only a few like AMZN itself survived as standalone entities we can trade. This is why I don’t think it’s worth getting hung up thinking of niche categories – AMZN or some other giant will ultimately find a way to hone in on attractive opportunities. Instead, I believe it’s best to focus on new delivery models and new ways to manage commercial relationships.

Otherwise, we’re stuck in a universe dominated by Wayfair (W) in home furnishings, tiny Gaia (GAIA) in yoga supplies and assorted overseas Amazon-like marketplaces like Mercado Libre (MELI) in Latin America or Vipshops (VIPS) and Alibaba (BABA) in China.

However, those new relationships are a little more interesting. Remember, AMZN is really just a high-tech update on old-fashioned catalog retail. Stocks like Lands End (LE) are the last survivors of the catalog universe, but its persistence is a good reminder that the store as we know it isn’t a universal or necessary way to structure sales. (OSTK) is leading the way into blockchain-driven systems; Etsy (ETSY) and eBay (EBAY) blur the line between buyer and seller. I also wouldn’t rule out subscription retail models like Blue Apron (APRN).

These could turn into good opportunities down the road, so I think they’re worth keeping an eye on now.

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