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Amazon.com, Inc. (AMZN) booked more than $107 billion in 2015 sales on over 300 million active customer accounts. The ecommerce giant is booking 20% annual sales growth as traditional retailers struggle and is predicted to surpass Macy’s Inc (M) as America’s top apparel seller next year.
Analysts at Morgan Stanley (MS) found that the department store share of the apparel market has fallen by $30 billion over the last decade while Amazon and other online retailers have picked up over $28 billion in market share over the same period.
The $397 billion e-commerce leader has already started ramping up to steal sales from brick-and-mortar stores this holiday season with its second annual Prime Day. Research firm Forrester estimates that Amazon accounted for 60% of all online sales growth in the United States last year.
But not all retailers may be feeling the bite of Amazon’s growth story. A few may even be able to beat Amazon on the ground and in the ‘net.
Retail Categories And Companies Set To Win
Some retail categories may fair better than others when it comes to competing against Bezos & Company. While media, electronics and personal care rank as the most popular categories on the site, others do not sell as well.
According to Statista, less than 20% of respondents to a survey acknowledged buying home improvement or sporting goods products on Amazon.
In fact, looking closely at the retail categories that do relatively poorly on Amazon uncovers three pain points: heavier products that are more costly to ship, services, and categories where consumers have a strong affinity to brands that still sell through traditional channels.
These are the categories where traditional retailers can still beat Amazon.
Stocks That Could Dethrone Amazon.com, Inc.: Dicks Sporting Goods Inc (DKS)
Dick’s Sporting Goods Inc (DKS) is the only full-line sporting goods retailer with a national base and 92 specialty stores within different sports and themes. Its control of 11% market share in sporting goods gives it the scale and bargaining power with major brands that are popular with consumers.
This may be one of the reasons sporting goods have not sold well on Amazon — many of the best-known popular brands may have their own online stores but do not have a strong presence on Amazon.
Dick’s Sporting Goods is making a strong push into ecommerce with its own site, growing online sales 19.5% in 2015 and accounting for nearly 16% of total sales. This year’s bankruptcy of competitor Sports Authority left Dick’s as one of the few big-box choices for sporting goods and could help the company consolidate some market share.
Sales have grown at a compound annual rate of 7.5% over the last three years, well above overall retail sales growth, and the company has boosted cash return to shareholders through dividends and repurchases.
Stocks That Could Dethrone Amazon.com, Inc.:Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA)
Ulta Salon Cosmetics & Fragrance, Inc. (ULTA) is targeting 974 salons and retail stores in the United States through 2016. Haircare and nail services account for 41% of the $127 billion U.S. beauty market with the company benefiting through its ability to upsell into health and beauty products in its salons.
While people can buy beauty products online, Ulta is targeting a highly engaged segment of the market that wants advice from professionals. The company has grown its loyalty program to more than 20.6 million members which accounts for more than 80% of store sales. Ulta is also actively increasing its online presence for products, growing its own ecommerce sales by 48% last year to $221 million.
Revenue has jumped an annualized 120% over the last three years on an aggressive capital spending plan. Despite the focus on growth, management has been able to maintain cost discipline and has actually increased the operating margin by nearly one percent over the last three years.
Stocks That Could Dethrone Amazon.com, Inc.: Home Depot Inc (HD)
Home Depot Inc (HD) is the world’s largest home improvement retailer, the third worst-selling category on Amazon. Besides the fact that consumers want to see materials first-hand before putting them in their home, many products within the category are heavy and would be very expensive to ship.
Weakness in the South due to poor weather has weighed on housing starts lately but the market for new builds and home improvement is still strong. Housing starts in the United States dropped 5.8% in August to 1.14 million units but permits for future building jumped, suggesting a rebound in starts for coming months. Used home sales, a key indicator for home improvement spending, are up 3% so far this year against 2015.
Home Depot is using the housing recovery to return massive amounts of cash to shareholders, returning more than $41 billion through dividends and buybacks over the last five years. That’s 20% of the market cap and the company still has $4 billion in balance sheet cash and generates $8.8 billion in free cash flow annually.
Risks To Consider: All three companies are consumer cyclical and could see sales drop in a recession.
Action To Take: Retail companies are increasingly losing business to Amazon. Look to companies that are relatively protected to build your retail portfolio of stocks.