Although Amazon.com, Inc. (NASDAQ:AMZN) has traded higher by 25% over the last 12 months, slightly outperforming the Dow Jones Index. Yet, in the last week the stock has increased 3.5% — compared to a broader market loss — due to the company’s long awaited plan for expansion through grocery operations being announced.
Amazon.com, Inc. (NASDAQ:AMZN)’s expansion into grocery has been anticipated for the better part of three years, as many wonder if groceries can produce a new leg of growth. It is rumored that Amazon.com, Inc. (NASDAQ:AMZN) will first rollout the service in 40 markets.
Over the last decade, Amazon.com, Inc. (NASDAQ:AMZN) has drastically changed the retail landscape for technology companies such as Best Buy, but also the likes of Wal-Mart due to Amazon.com, Inc. (NASDAQ:AMZN)’s retail presence. Now, we’ll wait to see whether this breaking news will be disturbing for big chain food markets such as Safeway Inc. (NYSE:SWY), SUPERVALU INC. (NYSE:SVU), and The Kroger Co. (NYSE:KR).
Last year, Amazon.com, Inc. (NASDAQ:AMZN) reported total sales of $61 billion. The U.S. grocery business was estimated at $568 billion last year. Therefore, Amazon is entering a massive business relative to its current operations.
With online shopping becoming more popular by the year — estimated at 20% of purchased products — Amazon could very well control a large piece of the grocery market. For the sake of argument, let’s assume 5%, if so, Amazon would earn almost $30 billion in additional annual revenue; or 50% greater than current revenue.
In addition, Amazon is testing a new “Prime Fresh” service similar to “Prime” where members pay $299 annually to receive same-day or next-day orders on groceries; including more than 500,000 household products. This could be huge for the company, as Prime has been largely successful due to savings and rapid shipping. Prime is estimated to have more than three million users, and with grocery having the potential to drastically increase sales, that figure could rise rather quickly.
There is one other impact that grocery could create for Amazon, and that’s with advertising. The company is already expected to generate $835 million from advertising, up from $610 million last year. This new large grocery segment could catapult ad revenue in an industry that is unlikely to return a profit. Thus, the growth from advertising could be the segment that produces profit growth for the company. Looking ahead, these developments look to be highly lucrative for the company, and possibly investors as well.
Bringing back the pants!
Lululemon Athletica inc. (NASDAQ:LULU) is now restocking its yoga pants, without being see-through, and the stock traded higher by 1.5% on last Tuesday behind this news.
Prior to Tuesday’s 17% loss — behind news of Christine Day’s resignation — Lululemon Athletica inc. (NASDAQ:LULU) had been one of the better performing apparel companies of the last five years; gains of 400%. A large portion of those gains have come as a result of the company’s best-selling yoga pants, and their rapid growth.
While two of the company’s biggest products, its Astro and Groove pants, were pulled from the shelf, sales and store traffic has remained strong despite this loss. The two brands were pulled from shelves in March, and has reportedly cost the company $12-$17 million in lost revenue. While a 5% hit to revenue may appear small, product effectiveness is important to a high-growth company such as Lululemon Athletica inc. (NASDAQ:LULU) as is every bit of revenue growth.
Already, analysts are predicting a surge in sales as consumers rush into the stores to buy the newest yoga pant brands. These analysts confirm that both pricing and volume remains strong with the company, and that its “sheer problem” has been forgiven. Seeing as how this new/old revenue stream will be incorporated into the current quarter, and the company had already been on pace to outperform expectations, Lululemon Athletica inc. (NASDAQ:LULU) might be an interesting stock in a fragile retail sector; especially after its losses on Tuesday.
Conclusion
Both of these companies are seeing new revenue streams introduced into their business models. Lululemon Athletica inc. (NASDAQ:LULU)’s revenue is from old, but reinvented products. While Amazon’s upside could be from a much larger grocery segment, and an increase in advertising.
In my opinion, Amazon’s news is much more enticing. Lululemon Athletica inc. (NASDAQ:LULU) is reintroducing an old product, while Amazon is entering a massive market with untouched opportunities. In addition, with groceries being secular, it presents a level of security for investors in a fragile and volatile market. At the surface, this announcement from Amazon looks to create an immediate impact, and I suggest following the grocery integration as the months progress.
The article Two Retailers With Big Announcements That You Should Know originally appeared on Fool.com.
Sherrie Stone has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Lululemon Athletica (NASDAQ:LULU). The Motley Fool owns shares of Amazon.com. Sherrie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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