A Tale of Two Retail Giants: JP Morgan's Forecast on the WMT vs. AMZN Showdown

In JP Morgan's 11th annual Retail vs. Amazon.Com Inc AMZN deep dive, analyst Christopher Horvers lists numerous observations.

The online share should begin to grow again, with base e-commerce sales +high single digits as general merchandise recovers. Looking ahead, both Team Retail and Internet expect e-commerce penetration to rise again in 2023 despite consumer pressure on general merchandise sales, along with the share of wallet reversion.

On the retail front, Wayfair Inc W is particularly well-positioned to ride the rail of home category penetration and take share while the Street is under-modeling incremental margins. Additionally, Academy Sports And Outdoors, Inc ASO, Costco Wholesale Corp COST, Target Corp TGT, and Walmart Inc WMT all show potential to add some "sauce" to comps given online opportunities.

Team Internet still sees 40%+ online penetration potential long-term, with AMZN becoming the most significant U.S. retailer in 2024; Prime is worth an estimated ~$1,225 annual value with a global base approaching 300 million members in 2023. 

Grocery reaches 11% online penetration; traditional retail remains in the poll position, primarily as WMT invests and the club channel gains share.

WMT fortified grocery with endless aisles, finally showing accelerated unlimited aisle capabilities while bolstering profitability through alternate profit pools. 

After fortifying its pole position in grocery in the U.S., WMT is making accelerated progress in endless aisle general merchandise with a vastly expanded offering (primarily via 3P), faster delivery, and better leverage of data and technology. 

It is also bolstering its profitability with alternate profit pools, with advertising the most significant tailwind to margins (estimated 20-30 bps) and a small but scaling 3P benefit, which helps its position in all categories in-store and online. 

However, it would not be easy (or cheap) as WMT and AMZN target each other's backyards in the U.S. That said, this seems like a long and expensive battle considering the path to higher share goes through AMZN's backyard in general merchandise (12% total stake driven by 40%+ online share) and WMT's in "grocery" (23% share in a hyper-competitive market with natural online penetration headwinds). 

Generative AI could help transform e-commerce platforms. 

Amazon is well-established as 3rd largest online advertising platform; Advertising Services are the fastest-growing revenue stream w/high margins. 

WMT, BJ's Wholesale Club Holdings, Inc BJ, COST, and Ulta Beauty, Inc ULTA are well-positioned to grow ad revenues. 

Price Action: AMZN shares traded lower by 0.25% at $126.10 on the last check Thursday.

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