Google throws lifeline to desperate retail industry besieged by Amazon

Key Points
  • Amazon and Wal-Mart are the two giants of the retail space, with mega market capitalizations.
  • But 60 percent of the roughly 97 stocks in the Retail ETF now have market caps below $3 billion, which makes them small-cap companies.
  • Roughly two dozen retailers have declared bankruptcy over the last two years.
Google throws lifeline to desperate retail industry besieged by Amazon

The retail business is shrinking dramatically. While Amazon and Google and Wal-Mart duke it out for retail supremacy on the internet, vast swaths of the retail space have been reduced to micro-cap status, with tiny market valuations that make it impossible to borrow money and fund economic expansion.

Amazon and Wal-Mart are the two giants of the retail space, with market capitalizations of $464 billion and $241 billion, respectively. But 60 percent of the roughly 97 stocks in the Retail ETF (XRT) now have market capitalizations below $3 billion, which qualifies them for small-cap status.

Small-Cap Retailers
(Market Cap)

American Eagle Outfitters: $1.9 billion
Dillard's: $1.6 billion
J.C. Penney: $1.1 billion
Chico's: $991 million
Barnes & Noble: $541 million
Express: $430 million

J.C. Penney has a roughly $1 billion market cap. Some have even descended to micro-cap status, now valued at $300 million or less:

Micro-Cap Retailers
(Market Cap)

Cato: $347 million
Francesca's: $283 million
Fred's: $233 million
Hibberts: $231 million

Here's a delicious irony: Amazon's old rival, Barnes & Noble, now has a market cap of $540 million. Amazon has a market cap approaching $500 billion.

That means Amazon has a market value roughly 1,000 times its old rival.

And those are the ones that have survived.

Ken Perkins at Retail Metrics noted that at least two dozen retailers have gone bankrupt in the past two years, including The Limited, Wet Seal, RadioShack, Payless and Gymboree. Many that are left are ghosts, trading under $10 per share.

"Amazon has essentially leapfrogged the entire industry and came up with a lot of other innovative ideas ahead of everyone else, particularly Alexa," Perkins told me.

Will any of this ever change?

Wednesday morning, The New Yorker published a long article, "Who Owns the Internet?" — where writer Elizabeth Kolbert argued, "It is troubling that Facebook, Google parent Alphabet and Amazon have managed to grab for themselves such a large share of online revenue while relying on content created by others. Quite possibly, it is also anti-competitive."

Indeed, there has been a growing chorus arguing that Amazon and Google are simply too large, from USC professor Jonathan Taplin, who authored the book, "Move Fast and Break Things: How Facebook, Google, and Amazon Cornered Culture and Undermined Democracy," to NYU Stern School of Business professor Scott Galloway — a founder of advisory firm L2 — who has received considerable attention for a lecture he gave in July, in which he argued that Amazon, in particular, should be broken up.

Cooper Smith, who advises retail clients with Galloway's firm, L2, thinks we may be years away from a serious discussion on breaking up Amazon, but he advises retailers to not sit around and wait for that to happen.

He thinks Wednesday's announcement that Wal-Mart is partnering to sell some of its products on Google Home is significant for struggling retail survivors: "A lot of luxury brands like LVMH, which has refused to touch Amazon with a 10-foot pole, are talking about banding together to create a new luxury e-commerce space. Amazon hasn't been able to disrupt that market yet. Google and Facebook are the platforms with the reach, those are the alternative platforms that would help brands and retailers reach consumers without having to partner with Amazon."

Chris Horvers, retail analyst at JPMorgan Chase, was on CNBC Wednesday morning with a similar sentiment: "Wal-Mart's move to enable voice ordering and linking the history is really important. The idea is if we can get the Home Depot's and the Costco's to enable that and the Target's to enable that same feature, you start to develop an alternative platform to Amazon. ... We need to create an alternative site where the rest of retail can go and create critical mass from a customer's perspective."

That's likely one reason many retailers are trading up Wednesday.

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We need to create an alternate site where the rest of retail can go: Analyst on big retail team-ups