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The question now is whether AMZN will continue to correct - i.e. move sideways - or if the end of this wave will result in a new impulse wave. If the latter, will that wave be a bullish or bearish trend? For guidance, we'll reference two news items that came out today.
First, let's start with the competition. Two large retail stores - Kohl's (NYSE: KSS) and Macy's (NYSE: M) - both reduced their overall 2016 guidance today. Both cited a 2.1% slip in same-store sales, and as one might expect, shares of both are being hammered in after-hours trading. (The Street: Wall Street Punishes Macy's and Kohl's for Brutal Holiday Season.) To make matters worse, Macy's will close 63 stores by the spring of 2017. It's part of a larger move previously announced, however it will cost the company $575 million in 2017 sales.
Well, based on this news, the Retail Sales numbers released on 15 January should prove interesting. Given the extremely poor results being projected from these two retail giants, I'd be very hesitant to open a long position in that sector until both the retail numbers are out and any company in that sector in which I intend to go long reports their 2016 results. The risk just skyrocketed.
So what does all this have to do with Amazon.com? Well, it appears those buyers that didn't pass through the doors of Kohl's or Macy's may have let their keyboards do the shopping online. (Reuters: Amazon Doubles Deliveries in 2016 for Third Party Sellers.) According to the report, Amazon did 50% more business for these fulfillment partners during the holiday season, and they doubled their business for the entire year. Equally impressive, they saw 70% growth in the number of sellers using the fulfillment service for which Amazon takes a cut on every item shipped.
The growth and profitability of this portion of the business is tremendous. According to CEO Jeff Bezos, close to 50% of all items purchased on Amazon.com come from third party vendors. The growth potential in this space is significant, especially with the rapid adoption of online shopping. Year over Year, the company sold 5 million more items on Cyber-Monday alone, as compared to last year. With the delivery troubles experienced a year ago apparently behind them, a solid earnings report after the close on 26 January may well launch another bullish five-wave impulse in a stock already in near-earth orbit.
Even if AMZN is out of the price range for many of us, we still need to pay close attention to this space. Customers gained by AMZN are customers directly pulled from the brick and mortar retailers. That will have a negative impact on those retailers, certainly, but also potentially on the REITs that specialize in that space. On the flip side, it will be a boost to UPS, at least until Amazon finishes building out its own delivery fleets, an effort already underway.
Pay close attention to the retail sales numbers on 15 January, and factor those overall numbers into what the individual retailers are reporting. As always, follow the money and we'll find some very interesting trades in the making over the short term.