The case for why Amazon should buy Macy's

Macy's is reportedly in talks to sell itself to Saks owner Hudson's Bay, but its best possible buyer may actually be the company that triggered the decline of its retail dominance: Amazon.

According to Cowen & Co. analyst Oliver Chen, a Macy's-Amazon combination could be "revolutionary," as it helps fill the needs of both companies.

In a note published Tuesday, Chen lays out his case for why a Macy's acquisition would help Amazon.

Here are the reasons:

1. Tremendous vendor/supplier scale: Macy's would give Amazon access to a whole bunch of new apparel brands and help expand its first-party seller relationship.
2. Speed: Amazon could take advantage of Macy's vast number of physical stores and warehouses to improve delivery speed.
3. Big data meets retail: Amazon has the "best" predictive analytics technology in retail, so it could help Macy's make better decisions across inventory and pricing, and potentially lead to higher sales.
4. Merging physical and digital retail: Amazon would gain foot traffic from loyal department store shoppers and get to utilize Macy's physical presence to showcase products and have customers return products easily.

On top of that, Chen argues Amazon's online traffic growth, supply chain expertise, younger customer base, and superior mobile technology could help save Macy's. He writes:

"We believe this deal could address some of the major consumer pain points we have seen in our proprietary Cowen consumer studies as Amazon needs better brands, a more curated assortment, a physical place to return items, and customers could use help with ensuring fit - Macy's would also give Amazon greater credibility in curation and fashion authority."

Still, despite the potential benefits of a tie-up, Chen doesn't believe any serious talks between Amazon and Macy's will materialize in the near future, given the high costs of maintaining physical stores, and Macy's already struggling business model.

Plus, as noted by another Cowen & Co analyst, John Blackledge, Amazon does not typically do large deals (Macy's is worth ~$10 billion) and is more likely to start by testing and learning from smaller initiatives, like Amazon Go.

"Amazon will more likely continue to lead a charge to steal share from Macy's rather than acquire Macy's," the note says.

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