Amazon Prepares to Take Over the Auto Parts Sector

After leading almost every brick and mortar retailer, Amazon (NASDAQ:AMZN) looks all set to take down yet another sector of the retail industry, auto parts!

Amazon (NASDAQ:AMZN) has certainly redefined the “shopping experience” for shoppers from around the world. As the company grew, its competition that includes some of the biggest names in the retail industry, started to lag behind. From Wal-Mart (NYSE:WMT) to Sears Holdings (NYSE:SHLD), every retailer started playing catch up to one of the world’s biggest e-commerce empires.

And now it seems to be bad news for the auto parts industry. On course to become the largest apparel retailer this year, Amazon (NASDAQ:AMZN) has already pushed a few auto parts companies’ stocks down.

O’Reilly Automotive (NASDAQ:ORLY) went down by 3.3% on Monday, January 23, 2016, Advance Auto Parts (NYSE:AAP) slumped by 2.2%, Genuine Parts Company (NYSE:GPC) went down by 3.5% whereas AutoZone (NYSE:AZO) dipped by 4%.

The interesting point is that this is just the initial market reaction after Amazon’s (NASDAQ:AMZN) Chief Executive Officer Jeff Bezos’ plans became public. A few analysts do have their reservations against the latest expansion plans, but considering the CEO’s history none of his moves are to be taken lightly.

Amazon (NASDAQ:AMZN) is already offering a number of parts at discounted prices compared to some of its rivals. According to Jeffries September 2016 report, these discounts on average are 23% less than the above mentioned competitors. Discounts coupled with Amazon’s ability to offer same-day delivery in about 40 cities within the United States automatically raises the bar for Amazon’s competitors.

A few of the major auto parts manufacturers have started to sell directly to Amazon. One of their biggest motivators is the e-commerce giant’s promise to offer 30% more sales for the same auto parts being sold at its brick and mortar competitors.

Amazon’s latest move has the potential to start another online expansion war among auto parts companies. However, to expand online, Amazon’s competitors will have to built a whole new infrastructure and invest millions of dollars to ensure effective delivery and supreme online services. Amazon (NASDAQ:AMZN) on the other hand has everything in place to expand in the sector.

Despite a few businesses with low-margins (devices including Dash, Echo and Fire TV etc.), Amazon remains unbeatable. Amazon Web Services’ operating income increased two-fold to $861 million in the last quarter and its cloud platform is the biggest in the world.

It is exactly this kind of vision and growth prospects, which have made Amazon (NASDAQ:AMZN) one of the favorite stocks of hedge fund managers. According to nasdaq.com, the e-commerce retailer is one of the most owned stocks among hedge funds.

As of November 14, 2016, Steve Cohen owns about 266,668 Amazon (NASDAQ:AMZN) shares. Ken Fisher owns about 2,002,724 shares of Amazon whereas Ken Griffin holds 1,295,260 shares in the e-commerce giant.

The company is surely on a mission to cover all sectors in the retail industry. With dwindling profits and increased investment in building an online market place, some of the weaker competitors may head for the exit. One way or the other Amazon is rapidly establishing an unshakable foothold in the industry.