If you’re thinking of shopping for Rite Aid (NYSE:RAD) stock on its much-hyped, package pick-up collaboration with Amazon (NASDAQ:AMZN), be prepared to buy some Tylenol or Pepto Bismol for home delivery at the same time. Let me explain.
Chipotle (NYSE:CMG), Equifax (NYSE:EFX) or Wells Fargo (NYSE:WFC) — each brand has bounced back in recent years from high profile wrongdoings. The thing is, scandals can be sorted out and time helps in healing those past wounds. Too bad, that’s not the problem with RAD stock.
Rite Aid’s problem is the same one many once-great brick-and-mortar shops are going through or have bowed to already. More and more buying is transacted online with those goods being dropped straight to your doorstep. And chances are, Amazon has been a key player in this bearish market dynamic, even for a storefront like RAD stock.
Sure, Amazon has backed away from entering the prescription business. But Amazon already sells a line of over-the-counter private-label medicines. Its Basic Care line offers a range of products from ibuprofen to allergy medicine. Amazon is also pursuing the medical community to purchase common and disposable items from rubber gloves, syringes to gauze from its Amazon Business site. And that’s certainly at the expense of RAD stock.
RAD stock has another big problem too. Rite Aid isn’t a store known to attract foot traffic from the all-important millennial demographic. Sorry … Rite Aid just isn’t “cool.” And sadly, even the population Rite Aid has captured is getting older and less likely to be hopping in the car or walking to Rite Aid to pick up stockings, Certs and a prescription.
But before I pronounce RAD stock as being D.O.A., could Amazon be both a villain and savior for RAD stock? There are investors who believe the new Amazon Counter pick-up option for Amazon purchases at Rite Aid stores could be a prescription for success.
The bull case rests on the hypothesis that influential millennials flush with cash, who otherwise wouldn’t be caught stepping foot in a Rite Aid store, will now be waiting in line by the dozens and invariably be making additional impulse purchases from Rite Aid before exiting.
RAD Stock Monthly Chart
On the surface, the deal sounds kind of interesting. But don’t hold your breath on RAD stock. Most Amazon packages aren’t going to be dropped off at Rite Aid. And for those few packages that aren’t received at one’s doorstep, office or neighbor’s house, consumers have a choice of where they want to pick the delivery up from. And guess what? That’s probably bad news for Rite Aid’s service.
The fact is for those few boxes, packages and envelopes which don’t go to the doorstep, there’s already options for picking up merchandise. Consumers have a choice of Amazon Lockers at various convenience stores and even standalone Amazon storefronts to pick up items from. Further, with the partnership just underway and starting with 100 Rite Aid stores but promising 1,500 by year end, it’s still going to be a tough proposition to get Millennials, let alone anyone else that normally wouldn’t be in a Rite Aid already, into a Rite Aid store and make an actual difference in RAD stock’s bottom line.
Think about this as well, what’s to stop Amazon from opening up its Counter distribution network into other retailers and hindering Rite Aid’s chances even more? And finally, let’s be real … given today’s existing and more discreet options where communication is minimized and hassle free from checkout lines, the choices for millennials to pick up packages were already in place before Rite Aid’s Amazon Counter.
So, before you consider investing in Rite Aid stock, take a look at the stock chart and note that while the ginormous bottoming pattern certainly holds the allure of something special, you need to be smart. Think long and hard about today’s message, the obvious, existing problems the company faces and RAD’s nearly 30% in short interest as fair warning.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.