Could Amazon.com, Inc. (AMZN) Take a Hint From Best Buy Co Inc (BBY)?

Amazon's interest in brick-and-mortar locations may be what's needed to budge AMZN stock

Amazon.com, Inc. (NASDAQ:AMZN) buys Macy’s Inc (NYSE:M). It’s a crazy idea, right? AMZN stock has barely budged over the past couple of weeks since reports surfaced that Canada’s Hudson’s Bay Co (OTCMKTS:HBAYF) was in talks to buy America’s largest seller of apparel. Clearly, investors aren’t holding their breath.

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The media, on the other hand, has been busy speculating on the odds of a company like Amazon getting into a bidding war with the iconic Canadian retailer that is run by an American and also owns Saks Inc and Lord & Taylor.

Opinions vary on whether Amazon boss Jeff Bezos would make such a move, but let me assure you, it won’t be for the real estate.

No, if AMZN does make a play for Macy’s it will be for other, more-sensible business reasons. In fact, you could say Amazon would be taking a page out of the playbook of Best Buy Co Inc (NYSE:BBY), one of Amazon’s biggest rivals in electronics retail.

How’s that, you say? Let me explain.

AMZN Apparel Market Share

In case you missed it, Amazon has been slowly entering the apparel business since debuting its own private-label brands in early 2016 with 1,800 products available for sale under names such as Scout and Ro, Franklin and Freeman, and Society New York.

Essentially, it’s trying to fill the gaps not covered by its third-party sellers. However, a bigger attraction of doing its own thing isn’t lost on investors of AMZN stock, which is that you make more selling your own stuff than you do somebody else’s.

According to Cowen & Co., Amazon is expected to pass Macy’s in 2017 as America’s top apparel seller and by 2022 should have 16.2% market share.

While it could do most of this through its websites, having brick-and-mortar stores has always been on the minds of analysts and retail experts alike.

“We believe this deal could address some of (Amazon’s) major consumer pain points,” wrote Cowen & Co. analyst Oliver Chen in a recent report discussing the possibility of it buying Macy’s. “Amazon needs better brands, a more curated assortment, a physical place to return items, and customers could use help with ensuring fit — Macy’s would also give Amazon greater credibility in curation and fashion authority.”

That last part’s a bit of stretch. I’m pretty sure if Amazon knocked on your door and you’re a private label apparel manufacturer, you’d let them in.

Real Estate

To take full advantage of its private label expansion, real estate is going to become an important part of the equation as AMZN expands into brick-and-mortar locations. It’s not a matter of if Amazon will do this, in my opinion, but when.

Right now there is an abundance of retail real estate coming on stream through all the various store closings across America, including 68 Macy’s stores  — part of the bigger 100 store closings announcement from last summer — in 2017, so finding space isn’t going to be a problem for AMZN.

If you remember what happened to Target Corporation (NYSE:TGT) in Canada, buying all those leases in one big deal ultimately was its undoing because it put way too much pressure on its employees to execute such a big undertaking.

So, there is the argument that Amazon could expand one target market at a time until it has stores across the U.S. Unfortunately, that would take a decade or longer to execute. If it really wants to open retail stores this isn’t an appropriate solution for a growth company like AMZN.

Why Best Buy?

Business wasn’t looking good for the Minneapolis-based electronics retailer until CEO Hubert Joly turned the company upside down in 2012 implementing its infamous “Renew Blue” turnaround plan that turned physical store locations into local distribution hubs for its e-commerce business.

Former CFO Sharon McCollam called the ship-from-store initiative in February 2016 “one of the most important and strategic decisions in (Best Buy’s) history.”

The numbers don’t lie. In November, Best Buy delivered strong strong Q3 2017 results that included continued growth for its e-commerce business along with positive same-store sales growth. It’s taken multi-channel retail to the next level.

“Best Buy’s third quarter online growth of over 24% results in a very solid quarter, and continues to validate the company’s multi-channel transformation,” Moody’s lead retail analyst Charlie O’Shea said in November.

Renew Blue’s been such a success that retail expert Walter Loeb named Joly his 2016 Retailer of the Year.

Bottom Line on AMZN Stock

By acquiring Macy’s, AMZN would be able to push its products onto the store floors where it could learn more about what apparel shoppers want, while seriously lowering its shipping expenses by implementing a ship-from-store initiative much like Best Buy.

Yes, it’s already invested billions in warehouses across the country, but getting closer to the customer is never a bad thing; buying Macy’s might not happen but if it does, it’s got nothing to do with owning real estate and everything to do with AMZN owning the customer.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/amazon-com-inc-amzn-stock-take-a-hint-from-best-buy-co-bby/.

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