macy's

In Two Charts, How Amazon Is Killing Its Traditional Competitors

May 11, 2016

Macy's (m) latest quarter of poor results was the straw that broke the camel's back.

After Gap Inc (gps) this week reported disastrous April sales, the 13th straight month of comparable sales decline, and formerly good performers L Brands' (lb) Victoria's Secret and Costco Wholesale (cost) last week posted disappointing monthly sales, hearing Macy's slash its sales and profit forecast for 2016 on Wednesday sent investors in retail stocks heading for the doors, fearful that there is no end in sight to the sector's malaise.

Macy's shares fell 15% on Wednesday afternoon and dragged down those of many major retailers.

Target's (tgt) and Kohl's (kss) stock each fell more than 5% as investors anticipated poor results from both in the next week, while Walmart (wmt) was down nearly 3%. The worries seemed to hit the vast majority of publicly traded retailers across the spectrum: Nordstrom (jwn) was down 7%; Nike (nee) slipped 4%, and Michael Kors (kors) (which is very dependent on Macy's) fell 12%.

Those declines are much deeper than the 1.2% fall in the broader Dow Jones Industrial Average. And they stand in sharp contrast to Amazon.com's (amzn) 1.5% jump.

Yet the poor showing by major retailers of late, which followed a weak holiday season, doesn't seem consistent with factors that are normally conducive to consumer spending, such as lower gas prices and lower unemployment. Executives themselves seem befuddled.

"We're frankly scratching our heads," Macy's CFO Karen Hoguet told Wall Street analysts on a conference call. "We too are somewhat puzzled by the data that we're seeing on the consumer, and the traffic we're seeing in the stores and on the (web) site."

The answer to the puzzle may lie in Macy's own numbers: shopping is going online, a place dominated by Amazon.The department store reported e-commerce sales rose by a double-digit percentage. A good performance, and above the overall industry average, but one that suggests Macy's and others are only falling behind Amazon. Wall Street firm Cowen & Co reiterated its prediction that Amazon would surpass Macy's as the nation's top seller of clothes next year.

Data released by eMarketer on Wednesday to Fortune, show Amazon's e-commerce revenue rose 15.8% in the last 12 months to $82.7 billion. That is roughly the same clip as at Walmart (which reports results next week) which hit $12.5 billion. But because Amazon's growth is from a much larger base, the chasm in dollars keeps widening.

Amazon's aggressive moves to get more people hooked to its Prime subscription service and expansion of its same-day delivery options means traditional retailers will struggle to keep pace, let along start to narrow the gap. During the holiday season, Slice Intelligence had estimated Amazon alone accounted for 55% of e-commerce growth in the United States on the Monday before Christmas.

It's true that 90% of retail still happens in store only. But growth is heavily skewed to digital, an arena Amazon's dominance only seems to be growing.

No wonder Amazon was one of the retailers to inspire much faith on Wall Street these days.

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