Amazon's one-day delivery is the next big threat to retail industry, Morgan Stanley says

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Boxes move along a conveyor belt at the Inc. fulfillment center

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E-commence giant Amazon‘s one-day shipping is poised to pose a big threat to retailers, according to Morgan Stanley.

“Amazon One Day delivery is a threat that makes us incrementally cautious on our Retail coverage,” Simeon Gutman, the bank’s analyst said in a note on Tuesday. “We believe Amazon’s shift to one day delivery will again raise consumers’ expectations (as the introduction of two day delivery did 14 years ago).”

Amazon started rolling out free one-day shipping on over 10 million products for its Prime members in June this year. The company announced Tuesday it will start delivering grocery products within a two-hour window to all Prime members. While faster delivery increases Amazon’s costs, investors have cheered the move, pushing the stock up more than 18% this year.

To avoid losing market share and relevance, other retailers might be forced to catch up on one-day shipping in the near future, which would put pressure on their earnings and margins, Morgan Stanley said.

“The end results for retailers may be 1) top-line headwinds and 2) more investments and margin pressure, making us incrementally more cautious on our coverage as a whole,” Gutman said.

So far the “Big 6” retailers — Walmart, Kroger, Home Depot, Lowe’s, Costco and Target — remain healthy in terms of their share gains, but they should continue to “moderate,” the analyst said. He expects their new retail sales to decline 21% by 2020.

“Share losses are likely to be unevenly distributed among retailers,” Gutman said. “We think smaller retailers are more liable to cede share to AMZN’s one day delivery initiative than the ‘big 6.'”

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