You’re probably sick of us saying that ‘Amazon is going sub-Prime’. But we'll keep saying it until people actually appreciate it and put it in estimates for everyone from AMZN to WMT, TGT, KSS, CVS, JCP, W, DG -- and about 100 others. Today's announcement that it is offering $5.99 Prime to people on Government assistance (which is 21% of the US population) is pretty much breaking the camel's back.
Consider this...
- As AMZN marched towards 55% of US households having a Prime membership, it went down the FICO score spectrum. We welcome any and all pushback on this -- but we’re 100% confident in our data/research. See incremental Prime acquisitions by FICO score below.
- Is AMZN going to 100% of households w Prime? No. 70%? Why not? Regardless, pick your number, either way the growth rate is slowing, which is why Bezos is moving forward with the next leg of the plan. It's return-destructive, until it's not. That's convenient, bc nobody gives a hoot about any form of financial return on AMZN today, and I won't argue that it should.
- Returns will matter 1-2 years into #Retail5.0 when 25% of the 13.2bn square feet of retail space has restructured, and we see a new wave of (quality) IPOs. That's when we have a more balanced cnmpetitive landscape (yes, I really just said 'balanced'), AMZN growth slows and margins matter.
- Thought of a different way, Bezos is paying up for a lower quality customer. When we say 'paying up' we mean that it is boosting Prime incentives, offering things like streaming NFL games on Thursday nights and gunning for the red carpet (overpaying #oldmedia and undercutting consumer prices) in order to get you to buy more socks, sunglasses, pillows, strip steaks, broccolini and grass-fed butter via Amazon Prime/Fresh.
I still think mass retailing will be a two horse race between Amazon and Wal-Mart as AMZN accelerates into Brick & Mortar, and WMT accelerates online. Will there be a 1-to-1 convergence? No way. But it's pretty safe to say that the consensus thinks only one horse is running. It's gonna be wrong.
Our top Longs and Shorts are positioned accordingly.
LONG: NKE, COH, DKS, WMT, AMZN, RH
SHORT: HBI, KSS, UAA, RL, CRI, TGT, W, LULU, JWN, WSM, FL, JCP, PVH, TJX, JILL, VFC, BBBY, PRTY, M, HIBB, TIF, DG, GOOS
