When Amazon closes all department stores
When Amazon.com (AMZN) closes all its department stores in the U.S. next month, the retailer will likely be losing billions of dollars in revenue.
But for retailers that are able to survive, Amazon may be worth the gamble, analysts say.
“We think it’s going to be a good deal for Amazon and a good opportunity for some of these retailers,” says Jefferies analyst John Noguchi.
“They’re going to have to cut costs, which is a good thing for Amazon, but also for the industry overall.”
A large percentage of Amazon’s revenue comes from selling its own goods, so it could be a tough sell for retailers.
In recent years, many large retailers have tried to reduce costs through the use of online shopping platforms, which typically require a lot of inventory to sell.
Amazon, however, has been able to focus on the business of selling itself through its e-commerce platform.
“Amazon has a lot more inventory to bring to the table,” says Jason Szeck, chief economist at Cowen & Co. “It’s been able in the last year or so to focus more on selling directly to consumers than it has ever done before.”
For many of those retailers, Amazon has become an easier sell than its competitors.
“The challenge for Amazon is that the company has a very good relationship with its customers,” says Robert Nardella, director of global retail research at Cowens Group.
“And if Amazon is going to lose revenue, that will have a big impact on the entire industry.”
That could have a real impact on retailers, especially in the larger department stores that dominate many U.K. cities.
Nardelli says Amazon has a better track record in these areas than any other online retailer, with about 60% of its revenue coming from the online marketplace.
But if Amazon closes every major department store it currently operates in the United States, Nardello says it will likely lose money.
“Even with a huge loss of inventory, it will be a big blow to retailers,” he says.
Amazon will probably be losing $1.4 billion per year by the end of the year, according to Nardell’s estimates.
That’s because Amazon will be cutting spending on the e-Commerce business.
In January, Amazon announced it was shutting down its brick-and-mortar store network in the UK, with plans to focus instead on online retail.
Nordella says Amazon’s strategy has left the company with a large inventory shortfall, which it plans to address through an “overhaul.”
The company says it’s planning to buy back inventory at a higher rate and improve its efficiency.
Amazon said in February it will open more stores in China in the coming years, where it’s also investing heavily in logistics and technology.