Gene Munster Explains Prediction that Amazon will Buy Target in 2018
Influential market analyst Gene Munster of the venture capital firm Loup Ventures caused something of a stir over the holidays with his prediction that Amazon would buy Target in 2018, and he recently spoke to TCB to lay out his case.
It’s the kind of bold assertion that gets attention because of the source (Munster rose to fame as an Apple soothsayer during his 28-year tenure at Piper Jaffray and Co.) and because it’s a deal that is within the realm of possibility, but with potentially big and long lasting impacts—especially in the Twin Cities.
âAmazon can certainly afford Target, as Amazon’s market cap is $573 billion compared to Target’s $37 billion, but why would Amazon want to take such a big step into large scale brick-and-mortar retail when it has grown so rapidly online? We covered that, and a few other details, like possible antitrust issues, in our conversation with Munster below.
Q Why would Amazon need to take this step to buy Target?
I think where this idea of Amazon buying Target either makes a ton of sense or doesn’t pass the basic sniff test for people is their vision for the future of retail. We think that Amazon has this vision of mostly online, some offline. Four hundred and seventy Whole Food stores doesn’t get near where you need to go, and so just getting the retail footprint of 1,800 stores is a big advantage for Amazon. But then they also have to do the hard work of changing the flow of those stores and modernizing it with automation, robotics, like they are testing with their Amazon Go concept.
Q In your post, you mention that Target’s focus on moms makes it more appealing to Amazon. How so?
Amazon tries to win moms. They do a decent job of grabbing some of the other demographics that they go after. For example, with consumer electronics, they did a good job winning some of Best Buy’s customers a few years ago. But even though it’s the most sought after demographic — the mother — they still haven’t fully won that demographic. Obviously, the person who has the most control of the wallet is the mom, but another way to look at it is that it fits in with what we believe is how Amazon sees the future of retail: It would be a combination of Amazon, Whole Foods and Target in the mid- to high-end and, then you’re setting up a duopoly with Walmart in the mid- to low-end.
Q How would such a deal potentially affect jobs in Minneapolis?
Initially, I think very little, because Amazon lets their acquisitions run largely independently—if you look at Diapers, Zappos and Whole Foods so far. They obviously do a lot of back office type of stuff and web development. I would say that the vast majority of people who work at Target would probably have a greater opportunity than they currently have today… I think the part that would get dicey would be the integration piece of Target’s online presence with Amazon’s—that’s probably the only part where there is some friction.
Q What about the anti-trust issues?
When you think about an Amazon-Target combination, I don’t know this, but I think if you asked a hundred people how much market share they would have, they would say it’s a pretty big number, and in fact, that combination would be 13 percent… and Walmart’s not quite double that. So, even though the Trump administration loathes Jeff Bezos, I think it would be approved just based on pure market share numbers.
Q But it would instantly be a hot button political issue. A lot of Democrats would object, too.
When we think about all this coming together, that piece of it, even though it should be approved based on pure market share, just the unknowns around the political side was our biggest hurdle as far as putting this forward.
Q You’ve also written about how the future of brick-and-mortar retail is going to include more personalization and “empathy.” How do you see this potential combination fitting within that framework?
Traditional retail is going to change. It needs to get more tech focused. There is this empathy piece that we talk about, but there is also the opposite end: Robotics and automation. This is Amazon’s “Go” concept. I put those themes together in the sense that when you think of a Target-Amazon combination, you naturally think about what my experience at Target is today, but the way we think about it is that there are some forces in tech that are impacting retail, whether it’s adding empathy or adding automation. Automation is you just walk into the store, you pick something up and you walk out, you don’t actually even talk to anybody. They are kind of polar opposites—robotics, automation, empathy—but they play into the broader picture of how retail is going to be impacted by tech in the future.
Editor's note: This Q&A has been edited for clarity and concision.