Amazon's reported grocery plans could re-define what a 'store' is
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- Amazon is reportedly looking to expand its foothold in the grocery arena, according to The Wall Street Journal.
- Word of Amazon's plans knocked down shares of grocery stores like Kroger, and have implications not only for traditional grocers, but for consumers.
- Morgan Stanley analysts expect this push, if it comes to pass, "to change consumers' in-store shopping experiences and expectations" and "re-define what a 'store' is."
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Any investor could guess that Amazon's reported push into the grocery-store space would have disruptive implications for traditional supermarket chains like Kroger, Costco, and Walmart.
After all, shares of all three names dropped midday Friday when The Wall Street Journal, citing people familiar with the matter, reported Amazon was planning to open "dozens of grocery stores in several major U.S. cities."
It was a familiar chain reaction: the e-commerce giant still strikes fear into corners of the market it seeks to enter.
But Amazon's reported grocery plans could also have a transformative effect on the very way consumers think about in-store experiences, according to a Morgan Stanley analysis.
"AMZN's Next Major Innovation Could Well Be In-Store Shopping," a team of analysts led by Brian Nowak, who has a bullish $2,200 price target on Amazon shares, wrote to clients.
"Expect AMZN to re-define what a 'store' is," the analysts said.
They added: "Just as they've innovated the digital experience via Amazon.com, the logistics experience via their fulfillment network, and computing / storage via AWS, and (early days) internet of things with Echo, we expect this push (if true) to change consumers' in-store shopping experiences and expectations."
The stores might see more of a no-line, no-checkout, "frictionless" payment-type format akin to Amazon Go stores, Morgan Stanley said. That could also come with the use of augmented reality and other "digital in-store experiences."
The analysts said those offerings, if they're successful, could further pressure traditional retailers to invest and compete to keep up.
Read more: Amazon could be gearing up to reveal Walmart, Kroger, and Aldi's worst nightmare
The Wall Street Journal's report also noted that the first "outlet" could come a early as the end of this year, in Los Angeles, according to one person.
The Journal also reported that the person said Amazon has already signed leases for at least two other grocery locations with openings slated for "early next year." And all of the new stores would be "distinct" from the Whole Foods Market chain it acquired in June, 2017.
"The news that a deep-pocketed player is expanding into physical grocery is certainly an incremental negative for food retail," Wells Fargo analyst Edward Kelly told clients.
Kelly added that investors should be careful about "materially discounting valuations on this data point alone." In other words, it would be wise not to count out traditional retailers on this news by itself.
Others were similarly careful not to overreact regarding what Amazon's plans might mean for traditional grocers.
"The online giant's ambitions to make further in-roads into physical grocery are no surprise to us as to think it'd stop at WFM would've been naive," Jefferies analyst Christopher Mandeville said of Whole Foods Market.
Mandeville believes that long-term, grocers' risk cannot be underestimated. But in the near-term, "a few stores are inconsequential to incumbents' toplines while many grocers have invested heavily into fulfillment/online to service customers on their terms."
Amazon shares were up 13% this year through Monday. They are still down 17% their record high in September.
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