This is a powerful graphic from the Visual Capitalist. At year-end 2016, Amazon had a market cap of $356 billion. The combined market cap of Walmart, Target, Best Buy, Macy’s, Kohl’s, Nordstrom, JCPenney, and Sears is only $298 billion. Amazon is now worth more than most of America’s major department stores combined. Revenues at big box and department stores fell by almost 40% over the last ten years. Sales at Amazon increased more than ten-fold.
What about profit? Despite Amazon’s 10-fold increase in sales, there has only been a marginal improvement in profit margins and much of that improvement has been driven by the Amazon Web Services unit. Over the last twelve months, the online retail unit has generated a few hundred million in net income. The combined net income for the trailing twelve months for the eight brick and mortar retailers referenced earlier is about $18 billion.
With profit margins this low, how can any brick and mortar retailer compete? Amazon’s market capitalization has ballooned to a magnificent level on the expectation that CEO Jeff Bezos will eventually turn Amazon’s newfound market share into a sustainable profit stream. Bezos is a smart operator and Amazon offers some outstanding services, but investors have given Amazon an awfully long leash.
Jeremy Jones, CFA
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