As many mourn the “death of brick-and-mortar retail,” and prophesize Retail Apocalypse, investors need to be aware of the rapidly changing retail landscape…
…and invest accordingly.
We hosted a complimentary webinar with live viewer Q&A recently: “What’s Killing Retail? The Big Winners & Losers.” (A video replay will be available to all who sign-up for access.)
In this special Hedgeye webinar, CEO Keith McCullough and veteran Retail analyst Brian McGough explored the juxtaposition between the U.S. economic rebound and the dismal performance of the Retail sector. McCullough (who also leads our Macro team) provided the big picture top-down view of the sector, specifically: Is the Retail sector investable right now? Meanwhile, McGough dug into his bottom-up research discussing the sector’s biggest winners and biggest losers and what the future of Retail might look like.
Below is a key takeaway from the webinar. Click here to watch the entire webinar for free.
AMAZON VS. WALMART
The battle for retail’s future is happening right now. Increasingly, there are two retailers duking it out for retail world supremacy: Amazon (AMZN) and WalMart (WMT). There’s one lingering question that will decide who wins. “Is it more difficult for Amazon to build the presence WalMart has built over the past 50 years,” McGough asks. “Or is it more difficult for WalMart to build what Amazon has built over 10?” In other words, who will amass the perfect combination of physical locations and eCommerce first?
It’s an open question. McGough walks through why he thinks Amazon might buy Best Buy (BBY) for its stores and why WalMart will continue its eCommerce company buying spree (Jet.com, Moosejaw, Modcloth).
To be sure, Amazon’s size is staggering. Did you know 55% of U.S. households have an Amazon Prime membership? Shocking right? How did Amazon get there? Here’s a really important chart. “This is something we have that no one else has and every time I put this in front of a portfolio manager they look at this chart and say, ‘Wow, is that true?’” McGough says.
It’s true. Amazon is targeting consumers with increasingly bad credit scores.
As you can see in the chart below, an ever larger share of Prime subscribers have really bad FICO scores (see the red bars going up in the chart). “It’s probably headed even higher,” McGough says. That’s because Amazon CEO Jeff Bezos is trying to make Amazon a ‘need-to-have’ by adding everything from red carpet movies to music to NFL streaming on Thursday nights to the Amazon ecosystem, McGough says. “This is a key trend, especially since Amazon has the best credit card on the market,” McGough says. “This is why if I was anything other than an exceptional brand with a great experience it means that you’re in really, really deep trouble.”