The beauty of Growth Seeker holding Amazon (AMZN) as a growth stock is that the business concept is so simple. But that simplicity also has multiple layers of untapped potential that could drive further growth and expand how we see the company and its services. The scary thing about Amazon is that it may just be scratching the surface of its potential.
Take its burgeoning apparel business, for example.
The company currently holds less than a 5% market share in the clothing and accessories segment, according to a Baird Capital note this summer, but that is bound to change as the company invests heavily in the sector.
"Apparel is a large category that remains highly fragmented. We think the low barriers to entry, size, and significant competitive set make this an attractive category for Amazon," Pacific Crest analyst Ed Yruma wrote in a February note. The company already has 1,800 products listed from its own branded apparel, according to Yruma.
Amazon's apparel strategy features two prongs. One is getting consumers to purchase clothing from third-party vendors on its website and getting those shoppers to adopt Amazon's own branded-apparel options.
To facilitate the second prong, Amazon recently launched a $15 million ad campaign to push its brands. Also in a stroke of synergetic genius, the company debuted the third season of "The Fashion Fund" and placed integrated options to buy items seen in the series directly on its streaming page.
A recent Morgan Stanley (MS) poll of 2,000 teen and adult shoppers showed that 58% of respondents shopped for apparel on Amazon in the past 6 moths, making it far and away the most popular apparel retailer among those surveyed. Brick and mortar retailers Kohl's (KSS) , JC Penney (JCP) , and Macy's (M) each received 37%, 33% and 27% of the votes, respectively.
"These data points continue to support our thesis that Amazon in quickly gaining consumer traction in apparel at the expense of department stores and select specialty retailers," the note read.
Morgan Stanley expects Amazon to account for 17% of the apparel market by 2020, selling $51 billion in clothes annually.
Lenore Hawkins, co-manager of the Growth Seeker portfolio and co-author of the book "Cocktail Investing," counts herself as one of Amazon's online apparel adopters.
Hawkins had been a loyal Amazon shopper for everything except clothing and groceries, she told Real Money in an interview. But as she perused the site, Hawkins started finding clothes she would normally get at Nordstrom (JWN) , Saks (SKS) and other traditional retailers on the site that she could get delivered within a day or two via Prime that often matched or even beat those other retailers' price points.
"I shifted from looking elsewhere for something, then checking back to see if Amazon had it. Over time, I've ended up purchasing more and more from Amazon for items that I used to buy elsewhere online," Hawkins said.
Meanwhile, her Growth Seeker co-portfolio manger and "Cocktail Investing" co-author, Chris Versace, has taken the plunge with Amazon Fresh and his initial experience has been favorable. "Across the board, the Amazon Fresh experience from ordering and pricing to quality of the product and fruit was fantastic. Amazon has even thought of how it can make the returning of the containers easier by partnering with the U.S. Postal Service for pickup. It's hard to see how loyal Amazon customers would not be open to Amazon Fresh."
Bottom line is Amazon is working its way into a growing share of consumers' wallets as it leverages its existing distribution expertise to provide more of what consumers want at a price that is as good, if not better, than the alternatives with delivery times that have the potential to make the competition obsolete. Now if they can only figure out a way to help Hawkins find the perfect pair of distressed denim capris to go with her latest pair of Jimmy Choo stilettos ...
