Inc. (AMZN) is pushing further into the apparel space, and if the company is able to command 25% market share by 2020, it would result in around $60 billion in lost revenue for the traditional retailers.

In a new stress test of sorts, Fitch Ratings looked at what would happen if the Seattle-based e-commerce company’s share of the apparel market increased from 7% today to 25% in three years, and it painted a dire picture for the likes of JC Penney Co. Inc. (JCP), Kohl’s Corp. (KSS) and Dillard’s Inc. (DDS). Those midtier department store operators would face even more intense pricing pressure in which EBITDA would decline by 50% or more compared to 2016. “All investment-grade department store retailers would be challenged to retain their investment-grade rating in this retail stress scenario (excluding management response), and several other smaller or already challenged apparel-focused retailers would face sharply elevated risks of financial distress.” a team of Fitch analysts wrote in a report. (See more: 13 Stocks That Are Safe From Amazon.)

A Mall Meltdown?

With a sharp decline in profitability for apparel retailers, Fitch said it would result in “large scale” store closings that would go beyond what has already been announced and would bring down regional malls that have a high exposure to the anchor stores that were in trouble. The credit rating firm said as many as 400 of the country’s 1,200 malls could close or be repurposed thanks to square footage reductions by the surviving apparel retailers. But the pain wouldn’t stop there. Some $40 billion in investment-grade-rated mall REITS​ could plunge into junk status, which would in turn limit their access to much needed cash. (See more: Traders Poised to Profit Off J.C. Penney, Macy's.)

According to Fitch, absent the Amazon effect, also hurting the apparel sector is a preference by consumers for fast fashion and the lack of compelling clothing styles that is resulting in consumers holding off on updating their wardrobe as often. For Amazon, it creates a situation where it can come in and dominate similar to what it did with books and electronics. The ratings agency pointed to Amazon's recent acquisition of Whole Foods Market as one example. If the company can do that in the apparel industry, it will have a huge impact.

“With good access to external capital and internally generated cash, Amazon has the ability to borrow and invest heavily as part of a strategy to gain apparel market share quickly,” the analysts wrote. “Fitch anticipates a significant market share gain in apparel would be accomplished through the successful introduction of private label clothing brands, along with some vendor wins, particularly in the more basics-oriented spectrum of fashion. Fitch does not anticipate successful migration of traditional department store brands to the online channel in this scenario.”