News of Amazon.com Inc’s department store plans sent a shudder through retail stocks just as some of the biggest names in the industry were reporting robust earnings, a signal that new challenges await in the beleaguered sector.
Amazon plans to open several physical locations to compete with department stores, the Wall Street Journal reported on Thursday, citing unidentified people familiar with the matter.
The first stores are expected to be located in Ohio and California, about 2,790m2* in size, smaller than the typical department store, the newspaper reported.
Photo: Reuters
Amazon declined to comment on the report.
Shares of big-box retailers like Target Corp and Best Buy Co fell abruptly in early trading on Thursday before recovering later in the day. This could be a sign that investors might be shrugging off the news after past Amazon incursions into brick-and-mortar retail failed to produce an expected disruption.
The potential new stores raise questions about the partnership between Amazon and Kohl’s Corp, which has accepted returns for the e-commerce giant for several years. Kohl CEO Michelle Gass has cited the collaboration as a driver of foot traffic for the chain and said it has helped bring in younger shoppers.
In an interview on Thursday, Gass said that her chain’s partnership with Amazon was still a “win-win” situation for both companies.
“It’s really important for us to have a differentiated offering against all the competition in retail,” Gass said. “There’s a lot of market share out there.”
Kohl’s quarterly results outpaced expectations. The shares initially slumped before turning positive later in the morning. The stock rose 7.2 percent at 10:53am.
Macy’s Inc, which raised its sales outlook and reinstated its dividend, also saw its gains temporarily ease following the report.
Amazon has a history of spooking investors when it enters a new industry, from groceries to health care. However, shares often recover as Amazon’s ambitions run into reality, such as its ill-fated venture with JPMorgan Chase & Co and Berkshire Hathaway Inc to remake health insurance.
Its purchase of Whole Foods in 2017 produced sharp declines at rival supermarket operators, but years later the acquisition has failed to fundamentally disrupt the industry.
While Amazon is known for e-commerce, it also owns physical bookstores in addition to Whole Foods. Amazon also has explored opening discount retail stores selling a mix of home goods and electronics, Bloomberg has reported.
GlobalData managing director Neil Saunders said Amazon’s latest move is likely to be “experimental at first,” but could end up being “very bad news for traditional department stores.”
“Kohl’s may suffer, if only because Amazon is likely to favor locations similar to its own,” Saunders said in an e-mail. “Macy’s, which is supposed to be developing its own smaller department store concept called Market by Macy’s, is behind the curve on rolling this out.”
He added that “the lack of innovation by traditional department stores means their defenses are very weak, so the last thing they need is to fend off a new invader to their space.”
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