Market Overview

Citi: After Whole Foods, Here's 7 More Retailers Amazon Could Buy

Citi: After Whole Foods, Here's 7 More Retailers Amazon Could Buy, Inc. (NASDAQ: AMZN) is a retail juggernaut. And the company has shown an inclination toward scooping up companies, even in the brick-and-mortar space.

The case in point is Amazon's purchase of Whole Foods Market, Inc. (NASDAQ: WFM), which brought Amazon into the physical grocery space. Amazon has announced three rounds of price cuts at its Whole Foods unit since buying the grocer in June. 

Against this backdrop, Citigroup analyst Paul Lejuez looked at possible retail M&A targets that would make sense for Amazon. 

These are the retail names across Citi's coverage universe Lejuez identified as potential targets for Amazon. (See Lejuez' track record here.) 

Abercrombie & Fitch Co. (NYSE: ANF)
Sprouts Farmers Market Inc (NASDAQ: SFM)
Bed Bath & Beyond Inc. (NASDAQ: BBBY)
Advance Auto Parts, Inc. (NYSE: AAP)
Kohl's Corporation (NYSE: KSS)
Kroger Co (NYSE: KR)

Most of the companies are bought at a 20 percent premium, according to Citi. 

Abercrombie & Fitch

Teen apparel retailer Abercrombie & Fitch might be on Amazon's radar due to the following reasons:-

• A low enterprise value of $620 million for the A&F and Hollister brands. 
• Sales of $3.4 billion.
• A campus in Columbus, Ohio. 
• Instant infrastructure on a global basis. 
• A young customer base.
• An option to sell proprietary products through flagship Abercrombie & Fitch stores.

Sprouts Farmers Market

Grocer Sprouts Farmers Market could pique Amazon's interest just as its bigger rival Whole Foods did, Lejuez said. The points of interest are likely to be:

• The existing partnership between Amazon and Sprouts Farmers Market.
• Potential synergies with Amazon's grocery delivery business.
• The ability to complement the Whole Foods platform

See also: Contrarian: Amazon Is One Of The Weakest Retailers There Is

Bed Bath & Beyond

Retailer Bed Bath & Beyond, which posted disappointing second-quarter results in mid-September, could be attractive to Amazon for the following reasons, according to Citi: 

• Store space dedicated to online pick-up. 
• Access to furniture space.
• Logistical know-how for large items.
• An overlapping merchandise assortment.
• 1,100 off-mall stores across North America.


"Within our furniture and home furnishings coverage, RH comes up most
frequently in conversations as a potential AMZN target," Lejeuz said. Here's why:

• Access to furniture space.
• Logistical know-how for large items.
• Both companies have high-income consumers.
• Both companies run a membership model.
• RH brand equity.

Advance Auto Parts

Auto parts retail is a growing category on Amazon and would make sense as an M&A target for the following reasons, according to Citi: 

• Amazon's keen interest in the auto space.
• Advance Auto's inventory breadth and depth.
• A specialized supply chain.
• An attractive valuation relative to peers.


Given the woes of the department store retail sector, an Amazon bailout could be a welcome development for Kohl's. Here's why it might make sense for Amazon: 

• 1,100 off-mall stores that could be used to market Amazon's top sellers.
• Access to proprietary and exclusive Kohl's brands. 
• Middle American customers.
• $1 billion-plus free cash flow.
• Kohl's existing partnership with Amazon.


Grocer Kroger could also appeal to Amazon as a potential buy due to:

• Its sizeable presence in the grocery market.
• Taking on Wal-Mart Stores Inc (NYSE: WMT).
• Access to valuable consumer data via Kroger's analytics division. 
• A significant click-and-collect presence to help with last mile grocery challenges.

Amazon shares have gained over 51 percent year-to-date. 

Related Link: 5 E-Commerce Stocks To Watch

Photo courtesy of Amazon. 

Latest Ratings for AMZN

Jul 2020Canaccord GenuityMaintainsBuy
Jul 2020Credit SuisseMaintainsOutperform
Jul 2020Morgan StanleyMaintainsOverweight

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