×

Wal-Mart is ‘under siege’ by Amazon, trader warns

Increasing competition in the grocery space spells big trouble for Wal-Mart, trader David Seaburg argues.

"Wal-Mart is under siege here," Seaburg, head of equity sales trading at Cowen and Co., said Friday on CNBC's "Trading Nation." "Their biggest revenue driver — the grocery segment — is under attack by Amazon and the acquisition of Whole Foods."

On Thursday, Amazon announced that it will complete its acquisition of Whole Foods on Monday and will immediately cut prices on a range of items in the high-end grocery stores. Shares of Wal-Mart fell by as much as 3 percent in reaction.

"With these cost cuts, Whole Foods is going to be able to go after Wal-Mart's market share, because they're going to attack and go after the customer and take them from Wal-Mart," Seaburg said. "They're going to be able to compete on price and provide a much higher-quality product, and Wal-Mart's going to suffer."

In addition, Seaburg points to the competition posed by Aldi, a German discount supermarket chain that has embarked on an aggressive U.S. expansion.

Aldi is "a discount provider that offers a high-quality product. I think Wal-Mart is going to be under siege from them as well."

While Wal-Mart has been seen as a "relative safety trade," the competitive pressure will soon "come to a head," Seaburg predicted. "I think the stock's expensive here and I don't see much upside."

Not everyone is concerned about the Amazon impact, however.

"I don't think it's a big concern," MKM Partners research analyst Patrick McKeever told CNBC in a phone interview Friday. "Wal-Mart's grocery business is pretty well-differentiated."

"Lower prices will probably attract some new customers into Whole Foods, but I don't think they go low enough for that core Wal-Mart customer," McKeever said.

In addition, Whole Food stores tend to be "in more affluent areas." And while Whole Food's prices may come down, Wal-Mart has done "a pretty good job of improving its overall grocery business – particularly fresh foods."

All in all, the Whole Foods concerns merely represent "a little noise here," said the analyst, who has a neutral rating on Wal-Mart.

Even after a tough end to the week, Wal-Mart shares remain nearly 14 percent higher year to date.

Disclaimer

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect