How Amazon’s Acquisition Could Affect Target
Target (TGT) is witnessing sluggish sales, and Amazon’s (AMZN) latest bid to acquire Whole Foods (WFM) will likely create further challenges for this mass merchandiser. The company has reported four consecutive quarters of comp declines and is in the middle of a restructuring plan aimed at revamping its store performance through small format stores and price investments. However, with Amazon coming into the picture, the retailer’s sales and margins are likely to slump, and its return to its growth plan will take more time to materialize.
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Target’s profitability could take a hit
Target is making price investments, which are taking a hit on its margins. Meanwhile, the top line remains sluggish in light of increased competition from Walmart (WMT) and Costco (COST). The company’s management is already portraying a bleak picture for fiscal 2017 and expects a decline in profitability.
During the last reported quarter, Target’s comps came in better than what analysts had projected, but they were still in the red. Comps fell 1.3%, reflecting a decrease in traffic and transaction size. In comparison, Walmart and Costco posted healthy comps growth driven by lower pricing.
However, now with Amazon ramping up its grocery initiatives, mass merchandisers like Target could be forced to lower prices further, which could negatively impact the companies’ margins and bottom-line growth.