Here are my talking points that I scripted in preparation for our AMZN Flash Call yesterday. Not spell-checked – ugly grammar. But so be it. Did I deviate from the script/notes? Yes. I live off-script. That’s what I do. See the 25 min discussion a Q&A w this link.
#Retail5.0 | The Beginning, Not the End | Replay: CLICK HERE
This is #Retail5.0 to a T. Pardon the commercial, but this is the best Deck my team has ever done. If there’s ever one to review, this is it.
#Retail5.0 Black Book | Link: CLICK HERE
1. Retail is More investable, not less
a. Never in my career have I seen such a consensus call. “Retail is Uninvestable” #wrong
b. 20% of retail should be up today, not down.
c. = opportunity
2. Why now, why WFM
a. Going SUB –PRIME, needs to go down the product spectrum.
i. Most people know that.
ii. WFM is not low price/value, but definitely a diff part of product spectrum.
b. Makes sense…grocery – we all know that.
[PAUSE – SLOW] BUT THIS IS A LOGISTICS CALL!
i. AMZN has 110 DCs or about 100mm square feet
ii. WFM’s 460 stores are about 18.2mm square feet
iii. Then add on WFM DCs/Supply chain.
iv. AMZN just grew its’ US DC capacity by nearly 30% on 10% sales accretion.
c. This deal is not even dilutive. Bezos does not care about dilution, and he STILL got a great price.
d. Why now? Here’s a doomsday thought…
i. AMZN’s US sales accelerated sequentially in the latest qtr to mid-20s.
ii. What if we’re sitting here in 2 quarters and AMZN US sales decelerate? Even if to the (still astounding) high-teens?
iii. Sorry folks, but for the biggest growth story in a generation has decelerating growth – even if by accident – at the same time it just did its biggest acquisition EVER – then this thing will lose it’s multiple faster than you can say “Alexa, give me a stock quote for Amazon”.
iv. That’s not my call, but let’s be intellectually honest and ask the question.
3. Store Strategy
a. Keep in mind that AMZN DCs are – on average – 100 miles from the center of each of the top 250 MSAs. That makes same-day deliver tough. Impossible, actually.
b. [Enter BARBELL Store Strategy]. Add stores in…
i. Boonies (like COST 25 years ago) – ie the North Have Pratt & Whitney facility that will prob be experiential DC AND Retail store.
ii. Small format…why not buy punk leases for nothing out of court? PSS/RSH, Grocers, etc…
iii. Micro-MSA…exactly what it’s doing w WFM. Within 5 miles of 80% of consumers in top MSAs. Oppty w other categories that have consolidated.
4. Winners/Losers – Three Parts
a. Immediate
i. Bullish? Does this integration (which AMZN absolutely cannot screw up!) buy competitors time? Yes, almost certainly.
b. Logistics/Final Mile – deliveries per day/week is critical…
i. Grocery stores – get deliveries at least 1x per day,
ii. Apparel – 1x per week, w overnight shipments in small scale
iii. Home Improvement – 1x every 2 weeks
iv. Consumer electronics – every 6 weeks
v. Sporting Goods – Ditto CE
vi. Auto Parts – delivery every 3-4 hours in the DIFM market. (Genuine Parts owns Nappa)
vii. Furniture…every 8-10 weeks. This is why AMZN is aligning w Ethan Allen and Ikea. You can even get Wayfair on AMZN.
viii. AMZN owning the distro pipe without owning inventory.
ix. FL is Nike’s best off-balance-sheet asset. This is exactly what AMZN is doing.
c. Deals. Transformational deals WILL happen. For better or worse. Al ost no prospective deal cannot be done with the right degree of strategic/financial creativity.
Remember when Coke bought Columbia Pictures?
Bad Deal does not mean No Deal.
i. TGT – in such major trouble.
1. Casper – tried.
2. W…TGT never grow again, buying a company that will never earn $. Does not mean Cornell won’t do it.
3. BBBY…Nonsensical, but again, Cornell…
4. Dollar stores – DG? Excellent logistics network. Catch up with WMT in small-format push.
ii. AMZN
1. DKS
2. BBY
3. Why not?
iii. WMT – tech/internet? Needs to own the consumer relationship. Jet/Hayneedle/Moosejaw/Shoebuy/Modcloth/Bonobos… WMT is most likely to go cross sector/industry.
[Note: WFM was Glenn Murphy’s pet project. This dude is the new Mike Ullman. New pet project = LULU. GM just appointed to Board. LULU CEO horrible. Steffan Larsen was GM’s rock star at GPS. Ralph just fired Larsen…]. LULU Bullish???
5. What to own
a. Brands already moving on to experiential
i. Nike – own this all day
ii. Why do you think it reorg’d yesterday?
iii. Store will meet online
iv. Our kids won’t ‘shop online vs B&M. They’ll simply ‘shop’.
b. WMT gap close w AMZN. #fact
i. Wal-Mart moving just as aggressively online w new #retail5.0 platforms as Amazon is moving into B&M.
c. Very good or Great content getting more relevant ON THE MARGIN!
i. COH is the poster child here w KATE.
ii. Expectations set so low. Avoid getting sued.
d. Prime distro/Own final mile
i. BBY/Geek Squad/change store 50/50 experience and distro
ii. DKS a step behind, but more defendable content, and supply coming out of ind. Not long term call, but math this year workd.
6. What to short
a. Avg retail w no final mile link
b. ‘Underinvestors’ in SG&A and Capex with no asset optionality and declining brand (even of the brand is very strong. i.e. ‘Great to Very Good’ is toxic.)
i. The USPS was a de-facto long when it started Amazon Fresh deliveries.
1. Now AMZN builds fleet of cars…
2. Utilizes UBER/Lyft?
3. Better version of Uber-Eats
4. Sysco play? Rebuild it via WFM, or acquire it (or a competitor).
ii. HBI
iii. TGT
iv. KSS
v. JCP
vi. NOT Macy’s
vii. Ralph Lauren
viii. Underarmour
ix. Tiffany
x. Wayfair
xi. JWN
xii. WSM
xiii. FL
xiv. PVH
xv. TJX
xvi. PRTY
