In Shift To Brick-And-Mortar, Amazon Seen Eyeing Automation, Not Macy's
As Amazon (AMZN) continues its disruptive ways, the e-commerce giant is said to be contemplating a two-story, automated supermarket. Against the backdrop of Amazon's shift into the world of "offline" brick-and-mortar retail, Cowen analyst Oliver Chen said that while a theoretical merger with Macy's (M) has some strategic logic, a deal is unlikely.
AUTOMATED STORES: According to a report by The New York Post, Amazon has contemplated an automated, two-story grocery store where robots on the second floor fetch items for shoppers browsing below. The concept could span between 10,000 and 40,000 square feet, and the ground floor would be devoted to goods that people prefer to touch, the report noted. Some of the locations could also feature in-store pharmacies "as Amazon looks to break into the lucrative sector," sources told the publication. The Post's report follows The Wall Street Journal saying in early December that Amazon's announcement of the "Amazon Go" checkout-free store concept was one of at least three types of brick-and-mortar grocery stores the company was exploring. Two of the other formats are larger than the "Go" format, the report noted, with sources telling the publication that Amazon's tech team approved in November a proposal to build large, multifunction stores with ability for curbside pickup. The company is envisioning launching over 2,000 physical grocery stores depending on the performance of the new test stores, the sources told the Journal. Publicly traded operators of retail food and drug stores include Kroger (KR), Wal-Mart (WMT) and Target (TGT).
MACY'S MERGER SPECULATION DOWNPLAYED: Speculating on the potential hurdles for a Macy's leveraged buyout, Cowen's Chen pointed out he believes Macy's will remain in "special situation" mode for the foreseeable future as new incremental buyers will likely be looking for a financial or strategic deal. Moreover, a deal of Macy's size is unprecedented in retail and could be difficult, he contended. The analyst told investors that while a theoretical tie-up of Amazon and Macy's has "some strategic logic," such a deal is "very unlikely." According to his colleague John Blackledge, Amazon will more likely continue to lead a charge to steal share from Macy's rather than taking an aggressive risk and acquire the company. Nonetheless, Chen noted that Amazon has many things Macy's needs, such as a substantial online traffic growth, distribution and supply chain expertise, younger millennial customer relevance, and a superior mobile application and interface. The analyst reiterated a Market Perform and $44 price target on Macy's shares.
AUTO PARTS COMPETITION: Commenting on another industry reacting to worries about Amazon disruption this morning, JPMorgan analyst Christopher Horvers told investors that the recent selloff of auto parts retailers has created an attractive buying opportunity for the group. Despite concerns over the e-commerce giant and its move into auto parts following media reports last month, the analyst pointed out that Amazon risk is at worst "glacial" and likely a lot more manageable than the stock prices are reflecting, while weather and comp shift from delayed refunds, which are other issues holding down the stocks recently, will both "sort themselves out." Horvers added that he views AutoZone (AZO) as the most attractive from a valuation standpoint, while reiterating an Overweight rating on the shares as well as on Advance Auto Parts (AAP) stock. The analyst has a Neutral rating on O'Reilly Automotive (ORLY) shares.
PRICE ACTION: In afternoon trading, shares of Amazon have gained about 0.5% to $811.93.
Disclosure: None.