Moody’s Damning Report on Amazon

Amazon Inc. is still a long way from dominating the US retail market according to a recent Moody’s investor report despite recent perceptions its merger with Whole Foods will dominate grocery retail.

Credit ratings agency Moody’s says that although Amazon’s acquisition of Whole Foods likely helped fuel perceptions that it is outdoing the major retailers and is on its way to taking over the food retail business – it says “these views aren’t borne out by the math.”

“Many see Amazon’s purchase of Whole Foods as further evidence that the online giant is dominating US retail, and the company is likely to remain the preeminent player in online shopping,” says Moody’s vice president Charlie O’Shea.

“But online sales still account for only about 10 percent of overall US retail sales, with a much lower percentage in the grocery segment, leaving the big brick and mortar retailers, led by Walmart, still really formidable competitors in the industry.”

Additionally, brick and mortar retailers are narrowing the gap with Amazon when it comes to online shopping, O’Shea says. “Amazon.com, Inc. — The online giant is still a long distance from ruling retail.” Amazon’s stock has been outperforming that of other retailers based largely on the promise of further expansion and potential expense reductions, but aside from sales growth, the company doesn’t perform as well as the largest US retailers.

In the absence of meaningful guidance from the company itself, market pundits also continue to offer inflated estimates of Amazon’s Prime membership base – as high as 85 million subscribers of late. But according to Moody’s calculations, based on demographic information, its suggests that Amazon’s Prime membership base is closer to 50 million against, for example, Costco’s paid membership of 47.6 million and total membership of 86.7 million at FYE August 2016.

Neither is Amazon close to dominating US food sales, which come in at around $800 billion a year, of which Walmart sells over $200 billion, or over 25%, Kroger sells about $130 billion, Albertson’s about $60 billion and Costco about $50 billion. “We believe it’s a big stretch to say Amazon will dominate the US food retail business in the next two years,” O’Shea adds. “Even with Whole Foods in its basket, its food sales still amount to less than $20 billion annually.”

Moody’s new report also looks at other misperceptions around Amazon.com, including whether it will be a major player in the appliance market and if it really is an immediate winner in every product category it enters.

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