Shares of e-commerce and cloud computing giant Amazon.com Inc. (AMZN) have gained nearly 8% in the most recent five-day period. The bulls were again given something to celebrate as the Seattle-based company's CEO and founder Jeff Bezos announced in his annual shareholder letter that Amazon's monthly Prime subscription base had exceeded 100 million. The burgeoning growth of Prime is seen as propelling the company ahead in various business segments, and one team of analysts on the Street now thinks it will allow the online retailer to become the leader in the U.S. apparel market this year. (See also: Why These 4 Big Tech Stocks Are Bargains.)
At a time when traditional department stores are struggling with waning foot traffic and a loss of market share to online platforms, Morgan Stanley expects Amazon to swoop in and quickly rise to the top of the U.S. apparel industry in 2018. Morgan Stanley's Brian Nowak issued a note estimating that the tech titan gained 1.5% of the market in 2017, a 10 basis-point year-over-year (YOY) sequential gain, largely at the expense of department stores.
As Millennials continue to demonstrate that they would rather spend their dollars online, Nowak sees their favorite platform, Amazon, overtaking Walmart Inc. (WMT), the world's largest retailer, to dominate the market. That said, the Morgan Stanley analyst notes that the competition is not a zero-sum game, at least for the time being. He wrote that Walmart and Costco Wholesale Corp. (COST) also posted "impressive gains" in the clothing segment, highlighting other apparel-focused stores such as discount retailer Ross Stores Inc. (ROST), Gap Inc. (GPS) and Nordstrom Inc. (JWN), which managed to secure about 10 to 15 basis points last year. While holding on to the market share gain would be an "impressive feat relative to how much market share AMZN is gaining," Nowak applauded the retailers for their improvement even amid a weak industry backdrop, suggesting that it "highlights how their value proposition (price, quality and selection) is resonating with consumers."
Department Stores Struggling
Those with less encouraging stories, noted Nowak, include department stores Sears Holding Corp. (SHLD), Macy's Inc. (M) and JC Penney Co. Inc. (JCP), which he estimates lost 0.8% in market share in 2017. By 2022, he expects department stores to account for just 8% of the U.S. apparel market, down from 24% in 2006.
Up 0.3% in pre-market on Friday at $1,561.99, AMZN reflects a 33.6% gain year-to-date (YTD) and a whopping 73.7% return over the most recent 12 months, compared to the S&P 500's 0.7% gain and 15.2% increase over the same respective periods. (See also: Amazon Rivals Protest Pentagon’s Giant Cloud Deal.)