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Stock pick: Why Amazon benefits as traditional retailers fall

Martin Kurlandski, MS

Key opportunity: Online retail's dramatic success (Part 4 of 4)

(Continued from Part 3)

Black Friday results signify a changing of the guard

The first-time fall in sales for traditional retailers on Black Friday that we discussed in Part 3 of this series may represent a permanent shift in consumer behavior. Increasing acceptance of online shopping, along with its attractive pricing and convenience, has accelerated the growth of e-commerce and boosted many companies while weakening the prospects of others. Companies like Amazon (AMZN), eBay (EBAY), and Overstock.com (OSTK) have been prime beneficiaries of this trend. Amazon and eBay are members of the First Trust Dow Jones Internet Index ETF (FDN), which corresponds to the performance of the Dow Jones Internet Composite Index.

The Amazon boon

Amazon was founded by Jeff Bezos in 1994, primarily as an online bookseller. Since going public in 1997, the company has diversified into electronics, computers, home goods, beauty, health, apparel, jewelry, and almost anything else consumers can think of. Plus, Amazon established a marketplace where independent retailers can offer their goods through the company’s website. The company introduced the Kindle in an effort to take advantage of the consumer shift towards digital publications and tablet use. And today, the company has also introduced Amazon Prime, a service similar to Netflix that streams entertainment media.

These innovations—as well as the underlying trends in online shopping—have been a boon to Amazon. The chart above shows Amazon’s sales growth since 2001. Growth has been uninterrupted, and it totals nearly 1400% in the period considered. As online retailing continues to capitalize on the weaknesses of brick-and-mortar retail, Amazon’s growth trajectory should continue. The stock will also likely continue to benefit in tandem.

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