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Amazon Claims Another Retail Victim

By Demitri Kalogeropoulos - Apr 2, 2013 at 6:30PM

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This time the target didn’t even make it onto the stock market.

Apparently (AMZN 4.11%) isn't satisfied in just targeting its biggest, most established rivals. The online giant is perfectly capable of disrupting your business before you go public, too.

Just ask Toys R Us. The struggling retailer last week canceled plans to join the stock market with an initial public offering, citing "unfavorable market conditions." Those were the conditions that produced a $366 million drop in Toys R Us' sales last year. Comparable-store sales fell too -- by 3.5% -- as the company failed to reverse the 2% slide from the year before.

Amazon, meanwhile, has had a much better run lately. It managed to sell $10 billion more of stuff in each of the last two years. Its general merchandise category sat at (only) $18 billion in sales for 2010. In 2012, that figure broke past $38 billion.

That torrid sales growth hasn't left much room for traditional retailers to log gains. Best Buy (BBY -0.32%), in particular, is feeling the heat. Like Toys R Us, it just booked back-to-back years of declining comparable-store sales. That competitive pressure has convinced the company to close 50 more of its large-format stores this year in a bid to shrink its cost structure.

And general retailers haven't fared much better. Target's (TGT -1.81%) comparable sales were flat in the fourth quarter, despite the price-matching policy it started offering against online rivals. The company's profit margin also fell, thanks to what it called a "highly promotional retail environment" over the holidays. Wal-Mart had a tough fourth quarter as well. It managed just a 1% sales increase over the holiday quarter.

Not all retailers are hurting
However, not every retail company has been overwhelmed by Amazon's growth. Costco (COST -0.82%), for example, didn't miss a beat over the last two years. The warehouse retailer matched Amazon by adding over $20 billion to its top line since 2010. Comparable sales impressed as well, up 10% in 2011 and 7% last year. And Costco's profits are as strong as ever, with gross margin holding steady at just under 11% of sales for two years running.

But the surest sign of the strength of its business may be the fact that Costco is opening up more new warehouses this year than it has in any year since 2007. If it's intimidated by Amazon's expansion, you sure aren't seeing it in Costco's latest results, or in its expectations for 2013.

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Stocks Mentioned, Inc. Stock Quote, Inc.
$2,307.37 (4.11%) $91.16
Target Corporation Stock Quote
Target Corporation
$215.28 (-1.81%) $-3.97
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
$84.50 (-0.32%) $0.27
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$490.47 (-0.82%) $-4.06

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