The Amazon vortex won't suck in everyone. That's the verdict of investors in the retail sector. Among potential competitors to the e-commerce juggernaut founded by Jeff Bezos, some – including Ross Stores, Home Depot and AutoZone – may have the wherewithal to withstand Amazon. The market is conferring on them valuations commensurate with, or better than, the one accorded to Amazon.
Amazon is already wreaking Hurricane Harvey-like damage on the shopping landscape. And that will intensify as the $450 billion titan completes its $13.7 billion purchase of Whole Foods this week. Amazon pledged to lower prices and put an end to its reputation as "whole paycheck," crushing shares in competing grocers last week.
But not all chains selling stuff to consumers are equally in the path of destruction. E-commerce sales made up 9 percent, or some $111 billion, of total retail sales tallying $1.3 trillion in the second quarter, according to the U.S. Census Bureau. In that same time period, Amazon notched $22 billion in North American revenue, suggesting there are still plenty of dollars to fight over.
True, investors are betting Amazon will emerge with lots of them. They value its equity and debt at about 1.5 times projected 2020 revenue of nearly $300 billion, Eikon data show. Yet Home Depot, the do-it-yourself category killer, bests Amazon at 1.8 times projected sales. That may reflect the fact that 40 percent of its online sales are picked up at over 2,200 stores, giving it a potentially defensible mix of e-commerce and bricks and mortar.
Motor-parts chain AutoZone may represent another retail slice that's somewhat Amazon-resistant. The $19 billion company trades at 1.5 times 2020 sales, a recognition that it has created a supply chain that minimizes inventory without crimping a timely ability to fulfill customer orders.
Even in the rag trade, there are bright spots. At 1.4 times projected 2020 sales, $23 billion Ross Stores, which sells reasonably priced clothing through more than 1,500 outlets, fetches an enterprise valuation close to Amazon's. TJX Companies, operator of TJ Maxx and Marshalls, lingers at 1.1 times sales. That's below Amazon but well above peers like Macy's and Kohl's. Bargain hunting may offer some respite from online price choppers.
Once he's done crushing the grocery business Bezos may seriously set Amazon's sights on car parts, cheap clothes and plumbing accessories. For now, though, the market is betting on a few pockets of calm.
Commentary by Jennifer Saba, a columnist at Breakingviews. Follow her on Twitter @jennifersaba.
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