Amazon.com’s surprise announcement last week that it would buy Whole Foods Market for $13.7 billion sent rival grocery stocks plummeting. It also unleashed a flurry of speculation about the retail behemoth’s next move.
“Amazon might go after Lululemon or Warby Parker next,” said cable business channel CNBC.
Shares of CVS, Walgreens and RiteAid also fell Friday as drugstore chains feared that the online giant could be heading their way next, making inroads into the highly regulated prescription-retail and pharmaceutical businesses.
In other corners of the Internet, analysts and investors speculated that Seattle-based Amazon could be setting its sights on organic grocer Sprouts, discounters DollarTree and Dollar General, and used-goods purveyors such as Plato’s Closet and Once Upon a Child. The Whole Foods deal, analysts said, signaled that Amazon — which until now had focused mostly on scooping up niche businesses and technology start-ups — is serious about buying established bricks-and-mortar businesses.
“Amazon has opened Pandora’s box by showing a willingness to spend billions of dollars,” said Tom Forte, managing director of Maxim Group, an investment banking firm in Manhattan. “Now analysts like myself can have fun making speculations on what types of acquisitions are next.”
Forte, for his part, has outlined 18 immediate opportunities for Amazon, including expansion into hardware stores, gas stations and pharmacies. But the most obvious targets, he said, are BJ’s Wholesale Club (which would come with a network of gas stations), Warby Parker (which could help Amazon get into the prescription-eyeglasses business) and Everlane (which has made a business being transparent about the pricing of its American-made apparel).
“For Amazon to move the needle, it’s got to be a very big idea,” Forte said, adding that he was wearing an $18 Everlane T-shirt. “They’re much more likely to acquire Everlane than, say, the Gap.”
Amazon, founded in 1994 as an online bookseller, has since grown into a $136-billion-a-year company with a hand in nearly every aspect of e-commerce: groceries, apparel, streaming video, baby goods, electronics and more. (Jeffrey P. Bezos, founder and chief executive of Amazon, owns The Washington Post.)
The company’s blockbuster announcement Friday roiled the plans of other companies like Blue Apron, which was preparing to go public soon, and stole the thunder of Walmart’s long-anticipated $310 million purchase of online retailer Bonobos, a deal also announced Friday.
Amazon kept that momentum going Tuesday, when it announced it would expand its fashion business with Prime Wardrobe, an upcoming service that would allow customers to try clothing, shoes and accessories before paying for them. The service, which would compete with offerings from retailers such as Macy’s and Nordstrom, as well as subscription-type services, sent apparel stocks tumbling Tuesday. Shares of Nordstrom, Gap Inc. and American Eagle Outfitters all slid about 4 percent, while shares of the parent company of Ann Taylor and Dress Barn fell about 8 percent.
But Brian Lee, an associate director at business-intelligence firm L2, said that much of the frenzy is an overreaction.
“The retail world is terrified, especially since the Whole Foods announcement,” Lee said. “But just because Amazon is getting involved in something doesn’t mean it’s going to be successful.”
He pointed to Amazon’s short-lived MyHabit flash-sales site as an example. His colleague, Sam Romanoff, added that Prime Wardrobe is not very different from similar services that are already available.
“They’re not providing anything new to an already oversaturated industry,” he said.
It is a similar story in the pharmaceutical industry, some analysts said. Ongoing speculation about a possible Amazon foray into the prescription drug business is largely unfounded, said Adam J. Fein, president of Pembroke Consulting, a Philadelphia-based research firm.
“Everyone has massively overreacted to the prospect of Amazon entering the prescription business,” he wrote in an email. “Whole Foods does not help Amazon’s pharmacy ambitions.”
Last month, CNBC reported that Amazon had hired a pharmaceutical veteran to oversee “an internal pharmacy-benefits manager for Amazon employees, which might be later scaled out.” Stocks dropped on the news, but analysts have since said that they think those fears were overblown.
“We believe the reports in May that [Amazon] is hiring people to break into the pharmacy industry are mostly noise,” Ann Hynes, an analyst for Mizuho, wrote Monday in a note to investors.
Plus, analysts said, Amazon tends to be slow and methodical in its acquisitions. Just because it offered billions for Whole Foods does not mean it is ready to snap up something else just yet.
“Historically, Amazon’s approach has been to build first, buy second,” Forte said, adding that the company has spent the last decade trying to build up its AmazonFresh delivery service. “It took years of trying groceries before they realized that it would be less expensive for them to just acquire a company like Whole Foods.”