One to Watch Is traditional retail about to overtake Amazon

What: the death of traditional retail in the face of staunch competition from Amazon has been dissected and talked about for years, as the traditional bricks and mortar retailers failed to keep up with the online behemouth. Amazon’s share price has risen 33% so far this year, although it is 7% lower than the record high of $1083 reached on 27^th July.

For Macy’s, the US department store, things have been bleak and the share price has fallen nearly 50% so far this year. However, things could be about to change, since late July Macy’s share price has started to pick up from the lows and is actually outperforming Amazon, as you can see in the chart below.

How: We believe this could be happening for a few reasons: 1, traditional retail is about to play catch up to the online giants and start giving them a run for their money, 2, it could be a sign that demand for the big tech players is starting to wane. Our hunch is that it is a mixture of the two. We think that some traditional retail companies like Macy’s have started to up their online game, which may improve their earnings potential for the future and is thus a solid reason for the stock price to move higher. However, we doubt that tech stocks will sell off sharply even if Macy’s continues to outperform Amazon.

The other thing to point out is valuation, which is a key theme at this late stage in the stock market rally. After a 50% drop in Macy’s share price, stock is starting to look cheap. This is in direct comparison to Amazon, where the share price trades at 251 times its earnings, relative to 8.1 times for Macy’s. So, while we don’t think that Macy’s is about to pose a meaningful threat to Amazon’s preeminent position in the US retail space, its share price could outperform Amazon in the coming days and weeks as investors’ hunt for a bargain.

Chart: 

Source: City Index and Bloomberg