Amazon’s quest for world domination will take a dramatic turn this year according to one influential tech investor, who has predicted the e-commerce giant will buy out US low-cost retailer Target.
This would be an aggressive move into the bricks-and-mortar retail sector for a company that has made its name as the destroyer of physical shopping.
It would suggest Amazon believes consumers want to continue shopping in physical stores.
And for Australian retailers, already spooked by Amazon’s dramatic arrival in Australia in December, it would send the message that it is prepared to compete with them on every front, not just the online one.
But one local retail expert told The New Daily Amazon’s interest in brick-and-mortar takeovers could “bode well” for struggling Australian department stores like Myer, which might find a willing buyer in the American juggernaut.
What Mr Munster said
The provocative prediction that Amazon would buy Target was made by Loup Ventures’ Gene Munster, a prescient tech stock analyst whose tips can, and in this case did, move markets.
“Getting the timing on this is difficult, but seeing the value of the combination is easy,” Mr Munster wrote.
“Amazon believes the future of retail is a mix of mostly online and some offline. Target is the ideal offline partner for Amazon for two reasons, shared demographic and manageable but comprehensive store count.”
Target in the US serves a very similar market to its Australian namesake, although the two companies have no commercial connection. And like Target Australia, it has struggled to turn a profit in recent years despite having a large market share.
Following the publication of the prediction, which Mr Munster said would see Amazon pay a 15 per cent premium for the company, Target stock jumped 3.5 per cent.
Investors, in other words, took his prediction seriously.
If Mr Munster is proved right, the move would not come out of the blue. Last year Amazon acquired upmarket US food retailer Whole Foods, in its first aggressive foray into bricks and mortar retail.
However, he pointed out that Amazon still only had 470 stores, compared with its biggest US competitor Walmart’s 11,695.
Buying Target would bump its store count up to 2,300 stores.
Mr Munster also predicted that US competition laws would allow the takeover.
He brushed off concerns over competition, telling Bloomberg Radio: “Investors would view this as Amazon taking over the world, and that’s a good thing.”
Also speaking to Bloomberg, Techonomy CEO David Kirkpatrick said Mr Munster’s prediction was “not crazy”, but said the political climate made it unlikely.
An opportunity for Australian retailers
Amazon’s launch in Australia in December last year was huge news, generating unusually high levels of interest from The New Daily’s readers.
Whether this interest translated into high sales figures over Christmas is yet to be seen. Amazon Australia has not commented on its Christmas sales, and did not respond to The New Daily’s requests for comment.
But this has not stopped Australian retailers getting on the front foot to fend off the threat.
Wesfarmers, which owns Australia’s Target, expanded online-only stores for its supermarket chain Coles, and in December revealed Bunnings Warehouse would take online orders for the first time.
Department store Myer also made a bid to compete with Amazon with its online marketplace the Myer Market, a venture that allows third party vendors to sell on Myer’s platform in exchange for a sales commission – mimicking the model used by Amazon Marketplace and Ebay.
Scott Kilmartin, an e-commerce expert and host of the ‘David Versus Amazon’ podcast, said the purchase of US Target would “give them access to the everyman customer and would be the physical retail step to becoming the offline ‘everything store'”.
He said Australian retailers, rather than fearing Amazon’s appetite, could submit to it.
“If they [Amazon] were to buy another physical retailer in the next 18 months it could bode well for department store purchases in other markets. Myer might quietly want to send a messenger to Seattle with a ‘for sale’ sign.”