How Does Amazon's Q3 Performance Read Through For The Rest Of Retail?

While Amazon.com, Inc. AMZN remains on a growth trajectory, the rest of the retail industry continues to feel the pressure, Wells Fargo’s Ike Boruchow said in a report.

Q3 Read Through

Boruchow mentioned that an analysis of Amazon’s Q3 performance highlighted four major implications for the rest of retail:

1. Total Sales: Amazon’s gross merchandise value (GMV) sales grew by more than $12 billion year-over-year, and accounted for more than 100 percent of the total retail sales growth in Q3.

Amazon’s total retail penetration continued to grow, from 7.6 percent of total sales in Q3 2015 to the current 10.1 percent. This kept comps under pressure for the rest of retail, which has reported negative comps for five consecutive quarters including Q3.

2. Online Customer Penetration: According to ComScore, 65 percent of all U.S. internet users visit Amazon.com in any given month, and this number has continued to rise. On the other hand, less than 5 percent of total web users visit specialty retail websites. “Not only are more people using Amazon each month, but the average user spends 8.0x as much time on Amazon as they do on an average specialty retail website,” Boruchow wrote.

3. Survey Work: Wells Fargo’s quarterly Amazon consumer survey shows that while 87 percent of respondents used Amazon, as many as 45 percent of them said that Amazon accounted for less than 20 percent of their spending. This leaves significant room for increased purchasing from existing users.

Moreover, a respondent was about four times as likely to plan to spend more on Amazon than spending less, reflecting potential market share gains.

4. Brands Using Amazon: Wholesalers appear to have “an intriguing opportunity to participate” in Amazon’s growth. Some key brands “already have extensive assortments on the site, while others appear fairly low or even non-existent today,” the analyst added, highlighting the following:

• Carter's, Inc. CRI.
• Hanesbrands Inc. HBI.
• Nike Inc NKE.
• PVH Corp PVH.
• Ralph Lauren Corp RL.
• Skechers USA Inc SKX.
• Steven Madden, Ltd. SHOO.
• VF Corp VFC.

At last check, Amazon shares were relatively flat on the day, down just 0.05 percent and trading at $770. The SPDR S&P Retail (ETF) XRT was recently seen up 0.65 percent at $47.81.