Amazon’s New Clothes May Outstrip Department Stores
By Teresa Rivas
Retail languished in the dog house for much of 2017 on worries over changing consumer habits and the relentless growth of Amazon.com (AMZN). The group got a breather earlier this year, thanks to strong holiday sales, that left some seeing signs of hope for a retail revival.
The SPDR S&P Retail ETF (XRT) is trading down on Wednesday, hurt in part by a note from Morgan Stanley that predicted Amazon will become the No. 1 U.S. apparel seller by market share this year.
Analyst Brian Nowak estimates that Amazon gained 1.5% of the U.S. apparel market share last year, a 10 basis-point year-over-year sequential gain, mostly at the expense of department stores. That trend will continue, he thinks, given that millennials are increasingly shifting their spending to the ecommerce giant (it's basically the avocado toast of retailers), along with Amazon Prime Members--a group that's now 100 million strong world-wide. Right now, Amazon is the second-largest apparel retailer, behind Walmart (WMT), but Nowak expects that these forces will push it to the top spot at some point this year.
That said, it's not totally a zero-sum game (yet). Nowak writes that Walmart and Costco Wholesale (COST) also showed "impressive gains" even with a weak industry backdrop.
Among apparel-focused stores, he also highlights that Ross Stores (ROST), Gap (GPS) and Nordstrom (JWN) gained some 10 to 15 basis points last year, thanks to Old Navy and the Rack, respectively, for the latter two. Keeping hold of that share gain "would be an impressive feat relative to how much market share AMZN is gaining." Nowak added, "[The] fact that these retailers are gaining share despite these headwinds is encouraging and highlights how their value proposition (price, quality, and selection) is resonating with consumers."
Of course, while there are winners, there are also losers, mostly department stores in this case.
Nowak estimates that Sears Holding (SHLD), Macy's (M), and JCPenney (JCP) lost 0.8% in market share last year, while Target (TGT) and Kohl's (KSS) were largely flat. Things don't look great for department stores this year either, he warns. The group will see share losses accelerate, from down 3.9%, or $1.8 billion, annually over the past decade to a decline of 7.9%, or $2.5 billion per year, through 2022. By then, he thinks department stores will account for just about 8% of the U.S. apparel market, down from some 24% in 2006.
XRT is down 1.1% to $44.61 today.
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