Our Retail Team – led by Brian McGough – is hosting a big, deep dive institutional call today at 11:00am ET on "The Future of the Retail Sector." Email sales@hedgeye.com for more information on our institutional research.
KEY DISCUSSION POINTS
Transformational Deals: Some companies have been playing strategic/capital deployment offense for years. Others are woefully underinvested. Share gain and loss will accelerate. We'll see big and out of consensus deals.
- Remember that fateful day when FedEx bought Kinkos? That was a head scratcher - until it wasn't.
- Ditto for Sears/Kmart - flawed but didn't stop the deal from happening.
- Federated buying May in 2005.
- Adibok
- Why not see transformations as distribution pipes become content owners, and content owners buy the final mile? That's the equivalent of anchor tenants signing 100-year leases 60 years ago.
- Some companies that will be acquired - potentially this year - are likely not even considering it yet at the Board level.
- We gotta think BIG here folks - on cross sector deals -- and the box the consensus is sitting in might be end up being a coffin.
- Deals won't be governed by #oldwall price targets. Acquirors will care about the big multiples on 'reach' assumptions generated by a third year banker at Goldman who needs larger transaction size to get paid - AND a CEO who wants a generational move to earn his portrait on the Boardroom wall.
Who Else Goes Bankrupt? Credit risk for public and private companies in the Retail Supply chain. The rate of Ch11 filing should meaningfully #accelerate in '17 when the economy otherwise should not dictate it.
Wide Reaching Implications: Big call to be made on everyone from the Mall REITs (and related -- everyone from GGP, SPG, SRG, TCO, VNO, MAC), Brands, vertical box lessees, big box, Asia.
What Is The Risk Of An Amazon Blow Up? Where is it relative to capacity? Failing the consumer (and that's not via AWS hiccups) would be a game changer until AMZN re-focuses capital away from content/marketing/growing Prime to re-building infrastructure.
Likely? Probably not, but definitely possible and needs to be considered in the context of any and all risk management processes.
- What will Amazon announce over the next two years that people can't (or won't) even conceive yet?
- Why doesn't Amazon buy a third of Macy's stores (Kohl's?) and make a branded/virtual showrooming experience?
- Is it cheaper for AMZN to build/buy? Why won't landlords PAY for AMZN to occupy space so it can jack co-tennants? It's probably gonna happen.
- Oh and by the way, it would add de-facto warehousing space in the middle of where people actually live. Is a 350mile drone flight plausible? No way. What about a 3 mile flight? Yep.
- Could Amazon turn into a massively capital-intensive model? Yep. That changes valuation - actually it will introduce the concept of valuation to the Amazon community for the first time in years. Probably a near-term negative - until one day it becomes the GARP stock of the decade.
Importance of Stores To The E-Commerce Part Of The Business: The 'store visits per purchase' carries tremendously among Softlines through the durables chain. This has implications for who can close stores vs who can't close (or sell) money losing stores.
There Are More Buyers Of Large Boxes Than People Think: Many more...they're just not the traditional players. AOL/Time Warner was a horrible deal until the Morgan Stanley Analysts made it happen (and at that point time, it was the Media and Internet analysts - who were sort of bankers as well). Bad deal but it didn't matter - it still happened. Bad deals happen all the time. Out-of consensus buyers will creep into the equation.
The Final Mile: Drones seemed like a ridiculous idea three years ago and cost AMZN half of its market cap. Still far-fetched. But less so than 3-years ago. Underground delivery networks and blimps? Seriously?
How Will Millennials Shop? How VR needs to co-exist with big-boxes. Why Amazon needs to buy big boxes. How things like 5G will change the game.
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