Amazon Attacks! Here’s How Retail Can Fight Back…
Amazon.com (NASDAQ:AMZN) won’t slow down.
The company is diving headfirst into pet products this week, announcing yesterday that it would begin to sell its own brand of dog food under the brand Wag.
The catch? You must be a prime member to buy the food, as well as future offerings from Amazon’s budding pet store.
Amazon’s move into the pet care biz is an obvious attack on the brick and mortar Petco and PetSmart businesses.. As Amazon goes after another important retail niche, the traditional retailers are scrambling to stay relevant.
PetSmart even bought popular online pet products retailer Chewy.com last year for a hefty $3 billion, Bloomberg notes. Will that be enough to help fend off Amazon’s new pet venture? Time will tell.
Thankfully, Petco and PetSmart are both owned by private companies — so we don’t have to worry about their respective stocks crashing as Amazon invades their turf. But Amazon’s latest move proves that no category is off limits.
Investors agree. Shares of Amazon have quickly recovered from their March swoon as eager buyers have bid up the stock. Shares are now consolidating just below all-time highs. Since the beginning of 2017, the market value of Amazon has more than doubled, while the Nasdaq Composite has risen just about 32% over the same timeframe.
Of course, our contention over the past couple of years is that the best retail operations will adapt and thrive despite Amazon’s growth and dominance. The idea of a physical retail store isn’t going anywhere. Sure, Amazon might become the world’s first trillion-dollar company. But there’s plenty of room for other retailers in this big world.
That’s why we’ve loaded up on some down-and-out retail names lately. In fact, our little “retail rebound” portfolio isn’t so little anymore, with bets on beleaguered big boxes like Sears Holdings (NASDAQ:SHLD) and Macy’s (NYSE:M), as well as expanding discounter Dollar General Corp. (NYSE:DG) and a long-term bet on Home Depot (NYSE:HD).
Now, the tide looks like it’s finally turning in the brick and mortar retail world.
During the January melt-up rally, we noted how the SPDR S&P Retail ETF (NYSE:XRT) was back on track and even outperforming the red-hot Nasdaq Composite. At the time, beleaguered retail names were helping lead the charge higher.
But the February correction slammed XRT. The retail ETF quickly coughed up its market-leading gains and sunk into the red. It was teetering near its December lows by the end of the first quarter.
That’s when the new rally started. The retail ETF is firming up after its late March bounce at support.
Bloomberg notes how bigger industry trends are starting to spin in favor of the traditional retailers. Rents are dropping for commercial retail spaces. Meanwhile, Amazon is facing major increases and shipping and online advertising costs.
“Over the next few years as physical retail looks less daunting, and e-commerce more so, look for a renewed focus on brick and mortar,” Bloomberg muses.