Where will Amazon look next?
Amazon.com, Inc. (Nasdaq: AMZN) shocked the world in June when it forked over $13.7 billion to buy Whole Foods Market. But just because Amazon has already made a blockbuster buyout this year doesn’t mean that it’s finished with its shopping spree. “When AMZN bought WFM in June 2017, it led many to believe that AMZN might have aspirations to establish more of a bricks and mortar presence in the U.S.,” Citi analyst Paul Lejuez says. According to Lejuez, here are the seven most likely buyout targets for Amazon should it continue its push into offline retail.
Abercrombie & Fitch Co. (ANF)
Abercrombie has a modest market capitalization of $1.1 billion, but it has a well-established mall retail presence and two valuable brands in Abercrombie & Fitch and Hollister. Lejuez says Abercrombie would give Amazon instant access to the infrastructure needed to design, source and sell clothing on a global scale. Amazon could take advantage of Abercrombie’s prime real estate to sell its own proprietary products, and Abercrombie’s young customer base would be prime targets for Amazon’s business. In the third quarter, Abercrombie reported 4 percent same-store sales growth, a beat that sent the stock higher by 35 percent.
Sprouts Farmers Market (SFM)
Amazon and Sprouts already have a deal in place to deliver Sprouts produce through Amazon’s Prime Now service. Sprouts fits the Whole Foods mold of a grocery chain known for its organic and natural foods and has a relatively large footprint of more than 250 stores in 14 states. Lejuez says Sprouts makes the most sense for a buyout if Amazon is not finished in the grocery space. With SFM stock down nearly 13 percent since the Whole Foods buyout, Amazon may have actually lowered its own price for a potential Sprouts takeover.
Bed, Bath & Beyond (BBBY)
Lejuez says there are a number of reasons for Amazon to take a close look at Bed, Bath & Beyond. First, the company already has store space dedicated to online order pickup. In addition, BBBY could give Amazon access to the high-growth furniture business, which is difficult to do via online channels alone. Bed, Bath & Beyond has a sizable national presence, including 1,100 stores outside of shopping malls across the country. Plus, Amazon already has plenty of merchandise that would fit right into its domestic and home furnishings themes.
Restoration Hardware Holdings (RH)
Restoration Hardware is another logical choice should Amazon choose to go the furniture route. RH has dealt with the logistics of selling large items, and its customer base is comprised of relatively high-income consumers that Amazon would love to access. Both Amazon and RH already operate membership models, and RH has a well-established brand among furniture retailers. Amazon recently launched two of its own furniture brands, suggesting it is already dipping its toes into the water. Restoration Hardware’s market cap of $2.1 billion would make a buyout price tag easy to manage, even at a steep premium to market price.
Advance Auto Parts (AAP)
Another market Amazon has targeted in recent years is auto parts. While Amazon can beat the prices of brick-and-mortar auto shops, it can’t top the convenience of a local store. When it comes to auto repairs, convenience often trumps price in the minds of customers. Much like with groceries, Amazon is already building its own auto parts business, but a buyout could give the online retailer an instant local presence in markets across the country. Lejuez says Advance is a much less expensive buyout choice than O’Reilly Automotive (ORLY) or AutoZone (AZO).
Kohl’s Corp. (KSS)
Kohl’s has a huge nationwide presence in 1,100 retail locations outside of shopping malls. Lejuez says these locations could be used for Amazon products as well as for online pickups and drop-offs. Amazon would take ownership of Kohl’s exclusive brands and provide Amazon access to a “middle America” customer base. Like Sprouts, Kohl’s already has a partnership in place to allow Amazon returns at 82 of its stores. Lejuez says the cherry on top for Amazon might be the more than $1 billion that Kohl’s has in annual free cash flow, which could help strengthen Amazon’s balance sheet.
Kroger Co. (KR)
In terms of the price tag of a potential deal, a Kroger buyout would be the largest of the seven companies on this list. Kroger’s market cap currently stands at $20.6 billion, meaning any buyout deal would far exceed the $13.7 billion Amazon paid for Whole Foods. Kroger’s market presence is much larger than Whole Foods, and Lejuez says a Kroger takeover could make Amazon a genuine threat to Wal-Mart Stores (WMT) in the grocery space. In addition, Kroger has valuable troves of data on its customers and would make Amazon pickup a breeze for millions of Americans.
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7 Stocks Primed for an Amazon.com, Inc. (AMZN) Buyout originally appeared on usnews.com
