Too Early to Junk Auto Retailers on Report of Amazon Parts Pushby
Analysts see limited threat from ‘dangerous competitor’
Automotive retail index falls as much as 1.3 percent
Amazon.com Inc.’s reported push into the auto parts retail sector spooked investors on Monday, sending shares of several auto retailers down, but analysts say the market might be overestimating the threat.
The 20-member BI North America Automotive Retail Competitive Peers Index fell to its lowest since Jan. 3 after the New York Post reported Amazon has signed contracts with auto parts makers in recent months. AutoZone Inc. declined as much as 5.1 percent, O’Reilly Automotive Inc. dropped 4 percent and Genuine Parts Co. fell 4.1 percent. EBay Inc. shares also slipped on concerns that its online auto parts business will see more competition.
Amazon is a "highly dangerous competitor," though its latest move will likely have limited impact on retailers like AutoZone, Genuine Parts, Advance Auto Parts Inc. and O’Reilly, as it will be narrow in scope and focused on “heavy DIY customers,” RBC analyst Scot Ciccarelli wrote in a note to clients.
"Most casual DIY customers likely don’t have the information and skill sets needed to comfortably order parts on their own, but heavy users may know exactly what parts that they want/need and could save money in doing so," Ciccarelli wrote. "Amazon’s distribution network just isn’t designed to serve most commercial customers, given the typical 20-30 minute delivery windows required," he added.
Chains such as AutoZone offer “high-touch service, substantial product selection and immediate availability,” which may help insulate the company and peers from the threat of Amazon, Oppenheimer analyst Brian Nagel wrote in a note to clients earlier.
Auto suppliers such as Delphi Automotive PLC and BorgWarner Inc., on the other hand, stand to gain as teaming up with Amazon would allow them to sell directly to retail DIY customers. The e-commerce behemoth provides a one-stop-shop retail distribution opportunity to the manufacturers for the first time, Bloomberg Intelligence analyst Kevin Tynan explains.