The Bespoke “Death By Amazon” Indices
On the following pages, we update the performance figures for the Bespoke “Death By Amazon” Indices. Amazon continues to make new highs, but the “Death By Amazon” Index (equal-weight) made a
new 4 year low on March 24th. Retailers have slashed jobs over the last two months as we discussed in
our blog post last week (link) while Amazon’s price action, sales, and positive sentiment continue to
surge (we discussed the company’s recent performance in our Model Portfolio Update earlier this
week: link). In this update, we also wanted to take some time to take a look at which retailers are most
vulnerable to the continued ascent of Amazon and which are likely being undervalued in response to
the rise of online retailing. Over the next two pages, we update our normal charts and tables detailing
the performance of our “Death By Amazon” Index and its components.
Below is an updated chart of the cumulative returns of the Bespoke “Death By Amazon” Index versus
the S&P 1500. As shown, while the S&P 1500 is just off all-time highs, the “Death By Amazon” Index on
a market cap weighting is right near multi-year lows. On the following page, we provide an update of
the performance of the Bespoke “Death By Amazon” Equal Weight Index, which weights constituents
equally as opposed to by market cap. Because we weight large, more stable stocks like Wal-Mart lower in that index, its volatility is higher and it’s generally easier to get a feel for overall retail performance from it. On page three, we have updated two-year performances for each stock in the index, as
well as its current weight in the index and daily return correlation to AMZN.
Bespoke publishes the “Death By Amazon” Indices as a way to track performance of the companies
most affected by the rise of AMZN. Companies included must be direct retailers with a limited
online presence (or core business based on physical retailing locations), a member of either the Retail industry of the S&P 1500 Index or a member of the S&P Retail Select Index, and rely on third party brands. We view these attributes as the best expression of AMZN’s threat to traditional retail.
The index is designed as both a performance benchmark and idea generation tool for our clients.
Indices are published monthly with market cap weightings and equal weightings.
Bespoke "Death By Amazon" Index: Cumulative Returns
180
170
Bespoke "Death By Amazon" Index
160
S&P 1500
+75%
150
140
130
120
+25%
110
100
90
BespokePremium.com
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Page 1 of 5
© Copyright 2017, Bespoke Investment Group, LLC. Bespoke Investment
Group, LLC believes all information contained in this report to be accurate, but
we do not guarantee its accuracy. None of the information in this report or any
opinions expressed constitutes a solicitation of the purchase or sale of any
securities or commodities.
Bespoke "Death By Amazon" Equal Weight Index: Cumulative Returns
200
180
160
140
120
Bespoke "Death By Amazon" Equal Weight Index
S&P 1500
100
80
Outperformance of AMZN vs Bespoke "Death By Amazon" Equal-Weight Index
400
350
300
250
200
150
100
50
0
-50
Bespoke "Death By Amazon" Indices
Standard
Inception
Weighting
Equity Type
2/6/2012
Market Cap
Large Cap, Mid Cap, Small
Cap, Micro Cap
Constituents
54
Avg Market Cap $14.0 bn as of 4/13/17
Sector
Consumer Discretionary
Industry Group Retail
Attributes
Consumer retail, Reliance on
3rd party brands, Limited
online presence
BespokePremium.com
Equal Weight
Inception
Weighting
Equity Type
2/6/2012
Equal
Large Cap, Mid Cap, Small
Cap, Micro Cap
Constituents
54
Avg Market Cap $14.0 bn as of 4/13/17
Sector
Consumer Discretionary
Industry Group Retail
Attributes
Consumer retail, Reliance on
3rd party brands, Limited
online presence
B.I.G. Tips Report 4/13/17 Page 2 of 5
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Bespoke "Death By Amazon" Indices Components
Name
AAN
ASNA
BBBY
BBY
BGFV
BIG
BKE
BKS
BURL
CAB
CONN
COST
CVS
DDS
DG
DKS
DLTR
DSW
FINL
FIVE
FL
FRAN
FRED
GCO
GME
GNC
HIBB
HSNI
HVT
JCP
JWN
KIRK
KR
KSS
M
MIK
ODP
PSMT
RAD
ROST
SFS
SHLD
SMRT
SPLS
SSI
SVU
TGT
TJX
TUES
VSI
WBA
WMT
WSM
ZUMZ
Aaron's
30.76
Ascena Retail
3.99
Bed Bath & Beyond 38.46
Best Buy
48.36
Big 5 Sporting
15.30
Big Lots
47.96
The Buckle
18.50
Barnes & Noble
9.35
Burlington Stores
93.56
Cabela's
53.26
Conn's
12.35
Costco Wholesale
170.17
CVS Caremark
77.96
Dillard's
52.49
Dollar General
68.96
Dick's Sporting
50.23
Dollar Tree
77.14
DSW
19.81
Finish Line
14.47
Five Below
45.09
Foot Locker
72.60
Francesca's
15.08
Fred's
15.06
Genesco
51.95
Gamestop
22.07
GNC Holdings
7.27
Hibbett Sports
28.65
HSN
36.90
Haverty Furniture
23.75
J.C. Penney
6.02
Nordstrom
46.43
Kirkland's
12.31
Kroger
29.86
Kohl's
40.15
Macy's
29.17
Michaels
22.91
Office Depot
4.76
PriceSmart
86.95
Rite Aid
4.57
Ross Stores
63.73
Smart & Final
12.00
Sears Holdings
13.35
Stein Mart
2.66
Staples
9.51
Stage Stores
2.60
Supervalu
3.78
Target
53.40
TJ Maxx
77.09
Tuesday Morning
3.55
Vitamin Shoppe
19.15
Walgreen
82.57
Wal-Mart
73.44
Williams-Sonoma
54.25
Zumiez
17.25
2,191.21
0.29%
777.80
0.10%
5,781.12
0.76%
14,948.60 1.97%
337.00
0.04%
2,147.95
0.28%
903.70
0.12%
677.58
0.09%
6,573.42
0.87%
3,649.27
0.48%
382.33
0.05%
74,694.63 9.84%
80,750.28 10.63%
1,641.04
0.22%
18,956.56 2.50%
5,665.77
0.75%
18,228.02 2.40%
1,588.64
0.21%
586.90
0.08%
2,476.81
0.33%
9,527.52
1.25%
566.12
0.07%
563.54
0.07%
1,018.84
0.13%
2,233.72
0.29%
498.46
0.07%
611.43
0.08%
1,932.39
0.25%
501.59
0.07%
1,857.89
0.24%
7,746.90
1.02%
195.93
0.03%
27,299.22 3.60%
6,920.11
0.91%
8,902.30
1.17%
4,327.57
0.57%
2,450.55
0.32%
2,643.11
0.35%
4,809.32
0.63%
24,982.13 3.29%
876.44
0.12%
1,430.47
0.19%
121.87
0.02%
6,205.56
0.82%
70.64
0.01%
1,011.75
0.13%
29,512.86 3.89%
49,768.52 6.55%
159.97
0.02%
448.59
0.06%
89,254.12 11.75%
222,744.19 29.34%
4,709.19
0.62%
430.27
0.06%
AMZN
Amazon
153,955.05
BespokePremium.com
Price
Market Cap Current
(mln $) Weight
Ticker
896.23
n/a
Performance (%)
Correlation
Vs Bespoke "Death By Amazon"
1 Year Return
to AMZN
Standard Index Eql Wgt Index
10.85
31.66
24.55
0.17
-59.55
-38.74
-45.85
0.08
-20.14
0.67
-6.44
0.12
50.54
71.35
64.24
0.12
36.12
56.93
49.82
0.06
3.54
24.35
17.24
0.10
-35.40
-14.59
-21.70
0.09
-25.87
-5.06
-12.17
0.15
63.40
84.22
77.11
0.17
9.12
29.93
22.82
0.15
-3.46
17.35
10.24
0.08
11.61
32.42
25.31
0.30
-22.80
-1.99
-9.10
0.26
-30.13
-9.32
-16.43
0.05
-17.33
3.49
-3.62
0.16
10.99
31.80
24.69
0.14
-4.24
16.57
9.46
0.24
-27.43
-6.62
-13.73
0.07
-28.91
-8.09
-15.21
0.08
11.63
32.44
25.33
0.15
16.64
37.45
30.34
0.17
-20.59
0.22
-6.89
0.14
2.41
23.22
16.11
0.08
-27.59
-6.78
-13.89
0.09
-30.16
-9.34
-16.46
0.17
-78.54
-57.73
-64.84
0.14
-17.61
3.20
-3.91
0.10
-31.69
-10.88
-17.99
0.16
27.53
48.34
41.23
0.18
-41.95
-21.14
-28.25
-0.02
-10.64
10.17
3.06
0.10
-28.48
-7.67
-14.78
0.13
-20.50
0.31
-6.80
0.08
-8.44
12.37
5.26
-0.02
-27.37
-6.56
-13.67
0.03
-19.82
0.99
-6.12
0.17
-37.13
-16.32
-23.43
0.06
2.73
23.54
16.43
0.23
-43.32
-22.51
-29.62
0.09
11.58
32.39
25.28
0.13
-23.43
-2.62
-9.73
0.07
-18.98
1.83
-5.28
0.06
-62.37
-41.56
-48.67
0.05
-14.89
5.92
-1.19
0.15
-66.99
-46.18
-53.29
0.11
-30.46
-9.65
-16.76
0.10
-34.55
-13.74
-20.85
0.12
0.61
21.42
14.31
0.25
-57.62
-36.81
-43.92
0.20
-35.87
-15.06
-22.17
0.13
2.11
22.92
15.81
0.32
5.94
26.75
19.64
0.18
-9.38
11.43
4.32
0.16
-5.28
15.53
8.42
0.06
45.21
66.02
58.91
n/a
B.I.G. Tips Report 4/13/17 Page 3 of 5
For Personal Use Only—Do Not Forward
While the performance (or lack thereof) of the “Death by Amazon” Index speaks for itself, it is interesting to note that there are a few stocks on the list that have done just fine. Perhaps the most notable among the group are the “off-price” apparel retailers, TJX, ROST and BURL, which have significantly
out-performed the index. Burlington Stores (BURL), which was historically known for a wide selection
of winter coats (when it was known as Burlington Coat Factory) is by far the best performing stock in
the “Death by Amazon” Index over the past year with a 63.4% return. Diversification away from winter
coats and an aggressive expansion plan has been well executed and well received by the market so far
(whether or not that is sustainable is a question for another day).
Perhaps more interesting is the second best performer on the list, which is Best Buy (BBY). While the
first retail category that Amazon destroyed (“disrupted” is the kinder word) was books, consumer electronics followed very close behind. Several well known consumer electronics retailers filed for bankruptcy in the last decade, including Circuit City, Radio Shack and most recently, HHGregg. Each bankruptcy was largely attributed (rightly) to the disruption from e-commerce. Best Buy too was written off
multiple times as a company that “didn’t need to exist” in the age of e-commerce. However, from the
year end 2012 lows of $11.29 (soon after current CEO Hubert Joly joined the company), BBY is up over
300% to its current price of $48.36. Early on in Joly’s tenure, Best Buy made the decision to “take price
out of the equation” by matching prices with Amazon and the big box retailers. Best Buy instead decided to compete for business based on service, including a highly interactive in-store experience and its
famous “Geek Squad.” Almost miraculously, Best Buy has managed to maintain its gross margins in the
low to mid 20s range throughout while achieving reasonably flat same store sales. Best Buy is a great
example of how to compete in the age of Amazon.
Best Buy (BBY) - Weekly: 2010 - 2017
55
50
45
40
35
30
25
20
15
10
1/10
BespokePremium.com
1/11
1/12
1/13
1/14
1/15
1/16
1/17
B.I.G. Tips Report 4/13/17 Page 4 of 5
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If everyone “knew” that Best Buy was dying in 2012, which company or group is in a similar situation
today? The answer is seemingly the department stores. Sentiment around that business model has
never been worse and there are a lot of reasons to think the negativity will continue. However, if Best
Buy was able to survive the consumer electronics blood bath, who is most likely to survive the apparel
version? Unfortunately, it’s never easy to predict these things in advance, but we can look for the
basic fact pattern to repeat itself. Which of the department stores has the best service oriented culture, the best in-store experience, the most exclusive products and is furthest along in digital transformation and technology investments? Much like in the case of the consumer electronics stores, it is the
qualitative answers to these questions that will prove significantly more important than recent results
or valuations.
Among the Death by Amazon department store constituents, Nordstrom (JWN) seems like the best
situated to succeed. Nordstrom serves a more affluent, fashion-focused client than most department
stores which on the margin makes it less likely a Nordstrom client is going to purchase clothing from
Amazon. Nordstrom also has a high percentage of exclusive and private label merchandise, which customers can’t find elsewhere. The company has been on the forefront of technology investing, including its purchases of Trunk Club and HauteLook to augment its own online platform, which represents
over 20% of Nordstrom sales. Overall, if any of these companies is likely to fend off an actual Death by
Amazon, Nordstrom seems best situated. At under 6x estimated EBITDA and 10x estimated EBIT, valuation is reasonable despite a premium to its more troubled competitors.
Nordstrom (JWN): Last Two Years
85
80
200-DMA
75
70
65
50-DMA
60
55
50
45
40
35
4/15
6/15
BespokePremium.com
8/15
10/15
12/15
2/16
4/16
6/16
8/16
10/16
12/16
2/17
4/17
B.I.G. Tips Report 4/13/17 Page 5 of 5
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