Amazon Has the Sharpest FANGs

 | May 17, 2017 | 3:00 PM EDT
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I've written numerous columns over the past several years on the impact of technology on the retail space. The common themes were that Amazon (AMZN) would displace the traditional brick and mortar retailers, would then do the same to the branded manufacturers, and would finally do the same to Facebook (FB) and Alphabet (GOOGL) , as the company attracted advertising revenue away from them and perhaps even created its own social network.

The first is long underway and fait accompli now. The second is in the process of occurring, and the probability of the third happening is continuing to advance. There are still big risks for Amazon, as the production-to-consumption chain is broken down to its essence, but they are not as immediate as the risks to the rest of retail's production, advertising and sales.

I'll write about the risks faced by Amazon in the future. 

The quickly accelerating trend in apparel manufacturing is to on-demand, custom-tailored products. That is, clothing that is made specifically for an individual.

Amazon is already ahead of the rest of the industry in creating the ability to meet the anticipated demand for such, which is an extension of its movement into manufacturing -- rather than simply fulfilling orders for goods manufactured by others.

This could very easily and quickly become the death knell for the entire apparel industry, and everything associated with it, as Amazon's custom-made offerings replace the "off-the-rack" product from both branded and unbranded manufacturers. 

But even as this is happening, one of the retail industry's responses is to finally pursue the creation of standardized sizes

The stunning level of obtuseness in this, though, is that it is indicative of an entire industry so entrenched in an old business model that it is oblivious to the fact that it is no longer relevant or viable. 

Standardization of sizes needed to be done decades ago, but was eschewed by the entire industry. Pursuing it now, as Amazon is making "sizes" irrelevant, is not only ludicrous but is a distraction from creating ways of integrating with Amazon and the new systems it has created.

The probable best-case scenario for branded -- and even luxury -- names is that Amazon will do to them what it did to the publishing industry a generation ago -- dictate terms of commerce.

The focus on standardization of sizes is essentially the entire existing apparel manufacturing and retailing industry wasting time while waiting for Amazon to produce the dictates, which their actions suggest they have already decided to submit to and accept.

It is possible, I suppose, that they are all either unaware of the magnitude of the existential threat Amazon poses for them, or are underestimating it.

In my opinion though, stocks like Ralph Lauren (RL) , PVH (PVH) , and similar, should not be owned.

The final issue to address here, again, is the impact of all of this on Facebook and Alphabet.

Although Amazon has not yet, as far as I know, announced any intention of creating a social network as I discussed in a few columns a year ago, its growing dominance and trajectory for monopolistic control of large swaths of the economy, and the related consumer data gleaned from that, puts it on a path to being able to supply more intelligent advertising closer to the consumer and the point of decision making than is possible by either Facebook or Alphabet.

Interestingly, even though investors in apparel manufacturers and retailers are exhibiting caution about the growing impact of Amazon on those sectors, there's been no such concern by Facebook and Alphabet investors, as the stocks are up 26% and 33%, respectively, in the past year. FB and GOOGL are both holdings of Action Alerts PLUS.

Maybe that can continue for a time. Ultimately, though, the current synergistic relationship being enjoyed by the FANG stocks is determined by Amazon allowing it to continue.

Maybe Jeff Bezos has decided that it's prudent not to disturb that relationship right now, or maybe ever, due to the fact that it would undoubtedly supply even more support for antitrust response by the federal government.

Still, the safest place to park long-term capital, of the four, is Amazon, in my opinion.

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