Amazon.com dominance of retail industry hits high

Published Wed, Oct 28 20156:00 AM EDT

Amazon.com's share outperformance over traditional retailers has never been greater than it is right now, as evidenced by the "Death by Amazon" index created by Bespoke Investment Group . The benchmark, which measures the performance of companies most disrupted by the rise of Amazon, has seen its value erode at an accelerated pace this year as shares of the online giant surged more than 90 percent. It's been a no brainer trade: Buy Amazon and sell Wal-Mart, Macy's and every other brick-and-mortar first store. But will it keep working or has the Amazon dominance simply gone too far? Source: Bespoke Investment Group Amazon.com's value has more than tripled, while the "Death by Amazon" index has underperformed the whole market since 2012, when Bespoke created the index. Bespoke explains the reason behind creating the measure as this: "Bespoke publishes the 'Death By Amazon' Indices as a way to track performance of the companies most affected by the rise of AMZN. Companies included must be direct retailers with a limited online presence (or core business based on physical retailing locations), a member of either the Retail industry of the S & P 1500 Index or a member of the S & P Retail Select Index, and rely on third party brands. We view these attributes as the best expression of AMZN's threat to traditional retail." This month, shares of Amazon ( AMZN ) hit an all-time high of $619 on the back of upbeat sales trends and strong growth in its cloud computing business. The solid performance by the online giant emerges at a time other large retailers such as Wal-Mart and Macy's face mounting pressure from investors as their stocks hit new lows. Since the beginning of the year, shares of Wal-Mart ( WMT ) and Macy's ( M ) are down 33 percent and 26 percent, respectively. Read More 10 earnings stocks ready to rip or dip Other retailers down more than double digits this year because of Amazon.com's disruption include Bed Bath & Beyond ( BBBY ), Best Buy ( BBY ), Sears ( SHLD ), and Barnes & Noble ( BKS ). Meanwhile, analysts on Wall Street have overwhelmingly boosted their outlook for Amazon, rating the stock a "buy" with a consensus price target of $715, implying a 17 percent gain from here, according to FactSet. Read More Top investor's best earnings trade Roberto Friedlander of Brean Capital recommends continuing to bet on Amazon.com and against the traditional names. "Recent stock activity of the mall-based specialty retailers/department stores tells the story clearly to what's transpiring this Holiday Season," said Friedlander, who predicts a "challenging" environment for the group. "Traditional retailers are faced with the same inventory issues and labor costs they have always had," he said. Bespoke should be ready to add a few more names to the "Death" index: old tech. In the last twelve months, revenue from Amazon Web Services (AWS), the firm's cloud computing business, rose 78 percent to $2.1 billion. "Companies like IBM are hiding behind the cloud. Amazon is the cloud," said David Nelson, chief strategist at Belpointe Asset Management. Disclosures: David Nelson owns shares of Amazon in the funds he manages. Brean Capital makes a market on Amazon, but does not cover the name on its research.

Amazon.com Inc. employees load boxes with merchandise at the company's fulfillment center in Tracy, California.

David Paul Morris | Bloomberg | Getty Images

Amazon.com's share outperformance over traditional retailers has never been greater than it is right now, as evidenced by the "Death by Amazon" index created by Bespoke Investment Group.

The benchmark, which measures the performance of companies most disrupted by the rise of Amazon, has seen its value erode at an accelerated pace this year as shares of the online giant surged more than 90 percent.

It's been a no brainer trade: Buy Amazon and sell Wal-Mart, Macy's and every other brick-and-mortar first store.

But will it keep working or has the Amazon dominance simply gone too far?