The 800lb Gorilla in retail land reported numbers last night, and while this isn’t a specific analysis on the AMZN print, there is one key chart that we think is particularly noteworthy headed into Retail Earnings season which kicks off in earnest during the first week of August. In summary, we’ve seen a striking divergence between the relatively strong headline government monthly sales reports and what’s been printed by most (we won’t say all) companies in our coverage universe. That was clear as day in 1Q where the government reported 3.6% growth, but softline retailers (control group of 15 companies) grew only 0.6%. What gives?
As of June, the retail group (ex Auto, Food Service, and Gas) per the government added an incremental $111 billion in sales on a TTM basis. Good for 3.5% growth. There are puts and takes by category, but if we look at the trend in US consumption holistically – it becomes pretty clear what one of the root causes for the discrepancy between what would otherwise be considered healthy sales data and the flow-through to the P&Ls of (especially mall based) retail. And that’s AMZN.
We think the numbers here speak for themselves. Of the $111bn added over the past 12mnths, AMZN alone has accounted for 25% of the incremental growth. Yep, that’s $28bn when you incorporate 3rd party sales. The highest rate we’ve ever seen and a rate over 50% higher than the company recognized a year ago.
Yes, the pie is slightly bigger, but the amount up for grabs is a fraction of what it would otherwise be given the sheer size of the share AMZN is churning through its website in the US. From here, near term expectations look to be in check for softline retail with the street expecting just 0.1% topline growth in 2Q. But given the trend in the chart above, we’re not banking on the acceleration to 1.4% growth in 3Q16 or 2.7% growth in 4Q16.
Assumptions on Amazon US End Retail Estimate:
1) 20% Take Rate on 3rd Party Sales
2) Total Amazon 3rd Party Units % = NA Amazon 3rd Party End Retail Dollar %
3) AMZN North America = US Equivalent
4) 2Q16 3rd Party Units % Assumed 49% of Total