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These Three Companies Could be Safe from AmazonWal-Mart, Ulta Beauty and Foot Locker are insulated, to varying degrees.
ByNicholas Jasinski
July 19, 2017 2:47 p.m. ET
Wal-Mart’s locations are often in more rural areas, where Amazon still doesn’t have as much reach. PHOTO: GETTY IMAGES/ISTOCKPHOTO
It’s been a month since the Amazon.com’splanned $13.7 billion Whole Foodsacquisition sent shockwaves through the entire retail industry. The implications continue to play out in the market, where companies perceived to be at risk have seen their shares fall.
But a new report from analysts at Jefferies highlights three companies that could continue to thrive even as Amazon finds new ways to reach consumers.
Wal-Mart
Half of Wal-Mart’s revenue comes from groceries, giving the world’s largest retailer a lot to lose if customers choose to buy food from Amazon instead. But Wal-Mart’s 4,500 stores and food distribution points in the U.S. still tower over Whole Foods’ 461 locations, and Wal-Mart’s prices are lower thanks to its massive scale and price investments over the years, according to Jefferies analyst Dan Binder.
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Consumers prefer to shop for groceries across multiple channels, and Wal-Mart has been increasing its capabilities, saying it will offer in-store pickup for online grocery orders in 1,100 locations by the end of the year. Additionally, Wal-Marts overlap with Whole Foods much less than competitors’ stores and are located across rural areas where shipping economics are harder to achieve, giving the company a difficult to disrupt customer base. Jefferies gives Wal-Mart shares a “Buy” rating and $88 price target, 16% above Wednesday’s midday $75.84 price.
Ulta Beauty
Ulta Beauty also looks protected from Amazon, according to analyst Stephanie Wissink. The cosmetics store chain is benefitting as people spend less time in grocery stores, making it more likely that consumers visit one of Ulta’s 1,000 locations. Another advantage is the company’s in-store services, where customers can come in and get their makeup done.
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“Until Amazon is successfully able to power and position a drone inside your home to cut/color your hair or shape your brows, a service destination is going to still be required,” Wissink wrote. Jefferies has a $350 price target on the stock, more than 35% above it’s $257.95 price on Wednesday.
Foot Locker
Foot Locker shares sold off considerably after Nike announced that it would begin selling its products directly on Amazon. The sports apparel brand accounted for a whopping 68% of Foot Locker’s sales last year. Jefferies analyst Randy Konik believes that Foot Locker’s 30% decline this year is an overreaction, making its shares attractively valued.
According to Konik, Foot Locker’s “Nike business is heavily launch-driven, with new product releases fueling traffic to the stores, a phenomenon that does not play out the same way online.” He sees Amazon as an additional sales channel for Nike to increase its sales, not to cannibalize its brick-and-mortar distribution. Additionally, he notes that a significant percentage of Foot Locker sales are completed in cash, insulating it more than its peers from the threat of e-commerce. Jefferies sees Foot Locker shares growing 64% from the current $48.83 to their $80 price target.
Big Picture: Wal-Mart, Ulta Beauty and Foot Locker are in a better position than others to handle competition from Amazon.
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