Amazon could buy Macy's, Kohl's, or JCPenney over Target
- Speculation is swirling that Amazon could buy Target as the ecommerce giant moves to grow its presence in the physical retail world.
- Target would give Amazon access to nearly 2,000 stores, but it has too much overlap with Amazon in certain categories, according to Steve Dennis, the founder of retail advisory firm SageBerry Consulting.
- Other potential Amazon acquisitions include Macy's, JCPenney, Kohl's, Lowe's, and Williams Sonoma.
An analyst's prediction this week that Amazon would buy Target has ignited a fury of speculation about the ecommerce giant's acquisition plans in 2018.
Loup Ventures' analyst Gene Munster said that buying Target - and getting access to its 1,834 US stores - would help Amazon to better compete with its chief rival, Walmart, and to get more moms hooked on Prime. He predicted that Amazon would pay as much as $41 billion for the big-box retailer this year.
Wall Street analysts have mixed opinions on Munster's Target prediction, but many agree with his basic premise: that Amazon "believes the future of retail is a mix of mostly online and some offline," and will grow its presence in the physical retail world as a result.
Amazon's $13.7 billion purchase of Whole Foods last year offered clear evidence of that strategy.
But Whole Foods has only 470 stores - compared to Walmart's more than 4,700 US locations - and controls just 1.2% of the grocery market. If Amazon wants to level the playing field with Walmart in the physical retail world, it will need a lot more stores.
That's why many analysts, like Munster, are confident that Amazon will make another major retail acquisition this year.
Target would give Amazon access to nearly 2,000 stores, but it has too much overlap with Amazon in categories like electronics, health and beauty, cleaning products, and entertainment, according to Steve Dennis, a former executive at Neiman Marcus and Sears and the founder of retail advisory firm SageBerry Consulting.
Amazon is more likely to go after retailers that have strengths in apparel, furniture, home improvement, and other categories that are still deeply rooted in physical retail, Dennis told Business Insider.
So if not Target, then who or what could Amazon acquire next?
The short list of candidates for an Amazon acquisition
Macy's, Kohl's and JCPenney would all offer sizeable real estate assets and could help Amazon grow its apparel empire - which has been a focus of Amazon's for the last several years.
Macy's, in particular, would be valuable to Amazon because it attracts more upscale customers than Kohl's or JCPenney, Dennis said. Macy's operates more than 700 stores in the US.
Lowe's, meanwhile, would give Amazon access to the home improvement market, a business that's "impossible to penetrate from a pure online presence," Dennis said.
Why not Home Depot?
"Lowe's gets you 90% of what Home Depot gets you at a lower price," Dennis said.
The furniture market is another business that's difficult to dominate purely online, making it an attractive play for Amazon as it looks to grow its market share in that category.
Furniture sales are highly fragmented, however, making it hard to identify a clear frontrunner for Amazon to acquire. Some top contenders would be Restoration Hardware, Crate & Barrel, and Williams Sonoma, which owns Pottery Barn and West Elm, Dennis said.
"My guess is Amazon will do something here - potentially even multiple deals - but a big move in furniture will likely not be their first priority in 2018," Dennis wrote in a column for Forbes.