Amazon: No Major Threat from Target's New E-Commerce Initiative

Includes: AMZN, TGT
by: Tiernan Ray

Target’s (NYSE:TGT) decision Friday to build out its e-commerce infrastructure won’t likely hurt (NASDAQ:AMZN), writes J.P. Morgan analyst Imran Khan in a note to clients. In fact, it could help.

Target announced Friday it would construct its own order-fulfillment services for its online sales, which totaled $1.8 billion last year, according to Khan’s estimate, signalling the end of its use of Amazon’s back-office fulfillment services, for which Amazon receives a fee.

“To deliver a customized multi-channel experience for Target’s guests, we believe it is in Target’s best interest going forward to assume full control over the design and management of Target’s e-commerce technology platform, fulfillment and guest services operations,” said Target president Steve Eastman in a prepared statement.

“We wish Target the very best as they go forward,” Sebastian Gunningham, Amazon’s head of seller services, said.

Khan estimates Amazon got about $100 million last year from the deal, less than half a percent of Amazon’s revenue, and he thinks the profit impact is negligible, at less than 1% of Amazon’s annual profit.

And there could be upside from potential Target mis-steps:

Rolling out a platform to fulfill the sales of a top-20 eCommerce site is likely to hit a few bumps in the road,” writes Khan. “and Amazon’s market share could see benefits if has any difficulties providing a top-notch customer service experience, in our view. Additionally, we believe Amazon may see a slightly reduced need for warehouse investment.

Khan maintains an “Overweight” rating on Amazon.

Amazon shares Friday are up 86 cents, or 1%, at $85.33; Target shares are up $1.22, or 2.9%, at $42.93.

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