Wal-Mart Threatens Amazon: Is It Safe?

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SEATTLE (TheStreet) -- Target(TGT Quote) recently announced it would go it alone in its online sales efforts, cutting out partner Amazon(AMZN Quote), which had filled the discount chain's Web orders since 2001.

With the loss of Target, Amazon could lose $100 million in revenue, according to JPMorgan Chase(JPM Quote) analyst Imran Khan. Amazon might be able to expand its market share if Target's new system fails, Khan says, but the move signals trouble for the Web retailer that can't seem to reap the benefits of online sales.

Seattle-based Amazon, a pioneer of Internet shopping, should have the best profit margins in the business, thanks to its popularity and lack of overhead. But the company's margins have lagged those of brick-and-mortar stores Target and Wal-Mart (WMT Quote) for the past three years. As these rivals expand their Web presence, success might become more elusive for Amazon.

While Amazon employs fewer people and lacks stores, its net margin has been the same as or less than those of Wal-Mart and Target for the past three years. Amazon's net margin, a profitability measure, was 3.3% last year, even though it slashed its debt use by more than half. That compares to 3.3% and 3.4% for Wal-Mart and Target, respectively.

Amazon's operating margin, a measure of efficiency, gives a more dour view. Operating margins at Wal-Mart and Target haven't fallen below 5.6% in the past three years, and have reached as high as 8.5%. But Amazon hasn't cracked 4.5% during that time.