Death By Amazon is a term we coined years ago to describe how Amazon was single-handedly destroying the margins, businesses, and ultimately prospects of traditional retailers as consumers transitioned from bricks to clicks. Like any pandemic, it started out small and with little fanfare in just books, but then Amazon made the jump to electronics, general merchandise, clothing, and just about every other sector in retailing. For many products that seemed un-Amazonable five years ago, Amazon is now the first place people turn. Even in the entertainment space, Amazon is barreling in. The slide below from a presentation Scott Galloway made in April shows that Amazon is forecasted to spend more on content this year than NBC, ABC, or HBO!
As Amazon infects all things retail, investors are piling in on the short side betting against traditional retailers. In this week’s latest update to short interest data, the average level of short interest in retail stocks (as a percentage of float) reached the highest level it has been since the depths of the last recession. All this is based in large part on fears that Amazon will continue to move into the space of traditional retailers and further marginalize them.
Things got a lot more real this morning when Amazon announced that it was acquiring Whole Foods for just under $14 billion, and a collective “Oh Sh%$!” was uttered in the headquarters of every other retailer across the country. The reaction in their stocks was immediate. For starters, Amazon saw its market cap increase by 3%, which translates almost exactly to what it is paying for Whole Foods. Outside of these two companies, though, they are dropping like flies. Of the 54 companies that make up our Death By Amazon (DBA) Index, the average decline as of Friday morning was nearly 3%, and the destruction in market cap has been significant. Check out the table below. Seven companies that make up our DBA index have lost at least half a billion dollars in market cap today alone. Leading the way lower, Wal-Mart has lost more than $12 billion, or $2 billion more than the entire market cap of Whole Foods before the deal was announced! In total, the seven companies shown have shed nearly $30 billion in market cap. Earlier this month, some started to think it was safe to get back in the water of retail after stories surfaced that the Nordstrom family was looking to take its namesake company private, but Uncle Jeff quickly put the kibosh on that idea today.
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