Munster: Amazon Buying Target Still Makes Sense

With only two weeks left in 2018, Loup Ventures founder Gene Munster has conceded his bold prediction that Amazon.com, Inc. AMZN would acquire Target Corporation TGT before the end of the year isn't going to happen. In a new blog post, however, Munster said the deal still makes sense for 2019 for the same reasons it did in 2018.

Deal Rationale

There are three main reasons Amazon should buy Target, according to Munster:

• Online sales are gaining share from offline sales, but retail will never go 100 percent online. Instead, Munster says online’s share of total U.S. retail sales will grow from about 10 percent today to a peak of about 55 percent in the long-term.
• There's a lot of overlap in Amazon and Target’s target demographic. Both companies are aiming for younger, higher-income shoppers.
• Traditional retailers like Target need to become more advanced to survive, and Amazon’s technology and data could completely change Target’s approach to business.

Munster said Amazon and Walmart Inc WMT are aggressively going after each other’s business, with Amazon lagging behind Walmart in physical stores and Walmart majorly trailing Amazon in its online offerings. Neither company has been shy about spending big bucks to close the gap, with Amazon opening rolling out new physical stores in 2018 and Walmart recently acquiring Art.com. Munster said Amazon needs Target and its 1,800 stores to give a boost to its physical retail presence.

No Timetable

Munster may have gotten the timing wrong on his 2018 prediction, be he said the rationale for a Target buyout is not time-sensitive.

“In fact, our belief that online retail will eventually represent 55% of US retail sales is one that will take place over a very long term — at a glacial pace, and Amazon is playing the long game in brick and mortar retail,” Munster wrote.

Despite a weak overall market Amazon stock is up another 30 percent year-to-date in 2018.

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