Amazon Apocalypse and Cheap Retail Stocks

Introduction: Anecdotes about the “Amazon Apocalypse”
The Rise, Fall, Resurrection and Failure Rates of Retail & Other Firms
The Batting Averages and Payoff Structures of Retail Pre and Post Amazon
Where Kailash’s Models Stand on Retail
Exhibits

Introduction: Anecdotes about the “Amazon Apocalypse”

Like many of our partners who subscribe to this product we have been known to read various magazines, newspapers and sundry other forms of media. One of the things we have noticed over the last year or so has been the rise of highly opinionated articles about Amazon. They can be exciting reads and their titles offer insights into the topic the writers intend to review. Below, and in no particular order, is a list of 10 titles of articles Kailash Capital has read over the last several months:

1. JEFF BEZOS WILL CRUSH YOU, How The Rise Of Amazon Has Destroyed Retail Chains, In One Chartⁱ
2. Competing with Amazon is crushing retailersⁱⁱ
3. Here are the consumer industries Amazon will crush nextⁱⁱⁱ
4. Why Amazon crushes Walmart in paid search for consumer electronics^iv
5. The cutthroat jobs strategy Amazon uses to conquer retail^v
6. Proof that Amazon has ravaged the retail industry^vi
7. Amazon is Completely Destroying These Iconic Stores^vii
8. Amazon Just Revealed How It’s Planning to Destroy All Grocery Stores^viii
9. Amazon’s Retail Trade War Is Bad News For Neighborhood Stores and Minimum Wage Workers^ix
10. Amazon is going to kill more American jobs than China did^x

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Considering all the crushing, ravaging, and killing that is being reported Kailash Capital finds itself relieved that all this violence is occurring in a contained commercial sphere. Reviewing the articles however, it is remarkable that a business largely made famous selling goods to Americans could be so successful while the media constructs a narrative about the firm that one might easily confuse with that of Genghis Khan or Attila the Hun. While there are plenty of more cheerful articles with names like “3 Retail Stocks That Amazon Won’t Crush” and “Amazon May Not Kill Big-Box Retail After All” our anecdotal observation is that there may be a consensus that the rise of Amazon has not been great for its competitors.

Looking at Figs. 1 and 2 below we believe the market has validated our anecdotal observation and taken the above media narrative to heart. Over the last one, two and three years, investors have awarded Amazon with remarkable levels of outperformance while punishing the rest of the retail sector severely. While a little difficult to see due to the scaling issues on the chart, retailers excluding Amazon have underperformed by nearly 20% and 50% in our S&P500 and Small & Mid Cap universes respectively.

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