Death By Amazon – It’s a thing (for retailers)

Have you heard of the “Death by Amazon” Index? It tracks the retailers whose earnings are under pressure from competition from Amazon, based on their daily share price and short interest ratio.

The Index shows that in recent years the performance of other retailers has come under pressure from Amazon, but a higher short interest ratio implies a greater likelihood that a stock will rebound fast when it rises.

 

Amazon a threat to the global retail market

The Death by Amazon Index was created by Bespoke Investment Group to track the share price performance of a selected group of retail stocks, as a useful index for investors in the retail sector. The Index has been updated daily since 2014.

Making comparison with Amazon, which has turned the global retail industry upside down, a performance indicator for retail stocks is a unique feature of the Index.

The spread of the Internet has enabled Amazon to have an absolutely devastating impact on the retail market. The latest edition of Deloitte Touche Tohmatsu’s Global Powers of Retailing report reveals that Amazon has newly entered the top ten ranked retailers, alongside the likes of US veteran retailers Walmart and Costco, and French retailer Carrefour. Amazon’s earnings were US$ 79.27 billion in 2015, and it achieved earnings growth of 13.1%, second among the top ten retailers only to US drugstore chain Walgreens Boots Alliance (which achieved growth of 17.3%).

 

Performance disparity among leading department store operators

Source: Shutterstock

There can be no doubt that Amazon’s rise is a threat to rival retailers. Put simply, growth in Amazon’s sales indicates that consumers are increasingly deserting actual bricks-and-mortar stores.

The Death by Amazon Index comprises direct retailers whose core business is retailing mainly third-party brand merchandise in physical stores (with a limited online presence), and that are members of either the Retail industry of the S&P 1500 Index or the S&P Retail Select Index.

The Index currently (January 2017) includes 54 stocks. An example of the Index’s performance made publicly available to nonsubscribers on Bespoke’s website shows that the average share price for the 54 companies fell 3.57% on January 5 – that is, the Death by Amazon Index stood at -3.57 that day.

The share price of US department store operator Kohl’s was down 19.02% on the previous day, while Macy’s suffered a 13.90% fall. By contrast CVS Caremark and Costco performed well, rising 2.90% and 1.97%, respectively.

The below ranking of the retailers with the highest short interest ratios was compiled by Bespoke using the latest data. The stock with the highest share price change over the last year is RH (previously known as Restoration Hardware), which has risen 54.95%. It has the highest short interest ratio, at 54.55. Eight of the ten stocks have suffered sharp falls in their share prices, but there is evidence we can expect future share price recovery, particularly for those higher up in the short interest ratio ranking.

Abercrombie & Fitch (9^th in the ranking), whose sales have been plummeting, has this year announced the closure of 60 US stores. The group was in preliminary discussions with a number of unnamed suitors for a potential sale in May, but eventually decided to end those talks in July and continue to operate as a single entity while undergoing a strategic review of its business. That announcement rattled investors.

 

Reverse ranking of retailers with the highest short interest and their short interest ratios

10^th: Tailored Brands, 29.01%

9^th: Abercrombie & Fitch, 29.68%

8^th: Buckle, 31.28%

7^th: Big Lots!, 32.49%

6^th: J.C. Penney, 35.17%

5^th: Dillard’s, 36.72%

4^th: Fred’s, 41.84%

3^rd: Big 5 Sporting Goods, 42.44%

2^nd: Rent-A-Center, 46.13%

1^st: RH, 54.55%

 

 

(By ZUU Japan)

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