Fears of a death by Amazon may be overstated in shares of the few companies that can effectively resist the Jeff Bezos-led juggernaut, according to a team of Jefferies analysts.
“Amazon’s planned purchase of Whole Foods further widened the valuation spread between consumer stocks the markets views as resistant to the AMZN threat and those viewed as vulnerable,” the analysts wrote. “That’s opened up opportunities.”
They cited stocks including Wal-Mart and Foot Locker as “overly discounting the [Amazon] risk.”
Amazon recently announced a $13.7 billion purchase of Whole Foods, sending shock waves across the grocery and retail sectors as fears of competition from the e-commerce giant swept the markets.
But Jefferies analyst Dan Binder suggests that Amazon’s purchase of Whole Foods is a concession that physical storefronts are actually important.
“The Whole Foods acquisition as a tacit admission by Amazon that a brick and mortar retail foot print is important in retail,” according to Jefferies. “Walmart’s prices are currently more competitive and the company is planning for additional price investment in the coming years and is raising the quality of its private label offering.”
Binder noted that only 12 percent of domestic Walmart stores are within five miles of a Whole Foods. Walmart shares are off by 5 percent since the Whole Foods-Amazon deal was announced.
In the grocery industry, analyst Chris Mandeville notes that Amazon’s involvement in Whole Foods is likely to play out slowly, focused on reducing unit growth and gradually lowering shelf prices to test consumer demand.
If Mandeville is correct, he believes “Kroger is capable of minimizing its margin risk through operational efficiencies in the intermediate term while M&A is a longer term option. Additionally, a less aggressive AMZN/WFM combo should provide Kroger with greater time to further roll out its ClickList concept as well as explore alternative delivery programs.”
Kroger shares have lost nearly a quarter of their value since the Whole Foods deal.
Wal-Mart, Kroger, Foot Locker, Sprouts in June
The analyst also points out that Sprouts Farmers Market (SFM) may be well-positioned to continue capturing market share.
“While in its nascent stages, the news of AMZN/WFM should accelerate SFM’s online/digital and force greater adoption of utilizing data analytics,” he added.
Specialty retail analyst Randy Konik believes worries around Foot Locker are “overblown,” creating an irrational sell-off in the shares.
The shoe store is “insulated from the threats of Amazon … as it is a destination in the mall and one of the few retailers that has been experiencing largely positive traffic,” the team wrote.
Foot Locker’s stock price has fallen over 30 percent year to date with the decline accelerating after news of a direct selling partnership between Nike and Amazon.