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New data predicts 3 Amazon takeover targets based on foot traffic

The FTC approved Amazon’s (AMZN) merger with Whole Foods Market (WFM) on Wednesday afternoon. The $13.7 billion deal is Amazon’s largest acquisition in the company’s history, but it likely won’t be its last big deal.

In a new report, location intelligence service Foursquare analyzed foot traffic trails from 2.5 million Americans to create a list of brands the e-commerce behemoth may target next.

Amazon CEO Jeff Bezos addresses the Economic Club of New York in New York City, U.S., October 27, 2016. REUTERS/Brendan McDermid
Amazon CEO Jeff Bezos addresses the Economic Club of New York in New York City, U.S., October 27, 2016. REUTERS/Brendan McDermid

CEO Jeff Glueck points out that Amazon prefers brands that foster deeper relationships with its current shopping base. It also prefers investing in challenger brands that are smaller and more upscale than in-market competitors, according to Glueck.

Because Foursquare’s data reflects consumer behavior at brick-and-mortar stores, pure e-commerce brands were excluded from its analysis of the data, which was collected from January 2016 to June 2017.

The three top contenders? Upscale retailer Nordstrom, eyeglass powerhouse Warby Parker, and home improvement store Lowe’s.

The apparel push: Nordstrom

Nordstrom (JWN) may be a particularly strong contender to be Amazon’s next acquisition.

“Whole Foods and Nordstrom have an overlapping customer set: Foursquare’s data shows that Nordstrom shoppers are almost 2x more likely to shop at Whole Foods than the average consumer. So an Amazon-owned Nordstrom chain would deepen Amazon’s relationships with its expanding core base,” Glueck says in the report.

Nordstrom, despite talks to go private, delivered stronger-than-expected same-store sales growth in the most recent quarter. Nordstrom Rack, its discount outlet store chain, was a notable bright spot — its online store experienced 27% growth.

Glueck makes the point that while Nordstrom Rack is not the category leader among discount retailers — T.J. Maxx takes the top spot — this makes it even more attractive because Amazon can unlock its untapped potential.

“Nordstrom Rack has actually lost more than 2% of its visit share to competitive discount retailers in the last two years. Amazon’s ability to slash prices further could lift the competitor brand, and give Amazon a strong foothold into the brick-and-mortar discount market,” he says.

Amazon’s latest Prime Day added more Prime subscriptions over a 24-hour period than ever before. Cowen analyst John Blackledge estimates that there are more than 54 million Prime members.

Considering the massive success and reach of corporate holidays like Amazon Prime Day, Glueck offers this possibility: “Imagine if every day was Amazon Prime day at Nordstrom Rack.”

Warby’s big spenders

Amazon is set to open its 10th brick-and-mortar bookstore this week. Amazon has been focused on melding technology with the in-store experience, providing a showroom for its Echo products in addition to traditional books.

Glueck says that Amazon could learn from Warby Parker’s showroom experiments. The online eyeglasses store now has 46 boutiques and an aggressive plan to open 25 more. Warby now makes more money per square foot in its US retail stores than Tiffany’s (TIF) or Michael Kors (KORS), according to Mary Meeker’s 2016 Internet Trends report.

“Amazon’s acquisition would improve Warby Parker’s distribution and reduce their shipping costs—fueling growth and padding pockets, too,” Glueck says.

Warby’s consumer base is 55% millennial and over-indexes at luxury brands like Bloomingdales (M), Williams Sonoma (WSM) and Lululemon (LULU), according to Foursquare data.

Perhaps, most importantly, Warby has similar demographics and meaningful customer overlap with Whole Foods, which further increases the various customer touch points that Amazon deeply values. Eighty percent of Warby customers also shop at Whole Foods.

Should Amazon double down on home improvement?

Home improvement has been particularly e-commerce-resistant, according to Foursquare foot traffic data.

Home Depot (HD), for example, cites its “one Home Depot” strategy, finding that 43% of all online transactions are actually picked up in stores.

Though Home Depot has the largest visit share (55%), Glueck says there’s extremely low brand loyalty: nearly 90% of Home Depot shoppers also visited Lowe’s (LOW) in the past year. That’s where Amazon can swoop in and help Lowe’s become a competitive player.

“Lowe’s is growing slightly faster (their share of foot traffic versus Home Depot has grown by 3% over the last 18 months) and yet they reportedly continue to suffer on margin, likely because they are so much smaller, with many fewer distribution centers. Amazon can help streamline inventory and distribution costs,” he says.

Indeed, Lowe’s latest results revealed yet again how it’s unable to take on professional homebuilders and contractors as well as Home Depot does. The professional customer spends more on big-ticket items. But this creates an opportunity for Lowe’s to double down on the average consumer, particularly women.

Around 43% of Lowe’s shoppers are women versus 39% for Home Depot, according to Foursquare.

“Amazon loves to win, so imagine what would happen if they cut prices and sacrificed margin to compete for marketshare, further growing their share of DIY homeowners. All together, Lowe’s seamlessly fits into Amazon’s playbook,” Glueck says.

It’s important to reiterate that these potential acquisitions are all Glueck’s speculation based on Foursquare data on foot-traffic patterns.

Of course, the only person who could accurately predict Amazon’s next big deal is Jeff Bezos himself.

Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.

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