While Amazon.com Inc. (AMZN - Get Report) , Walmart Stores Inc. (WMT - Get Report) , Best Buy Co., Inc. (BBY - Get Report) and Target Corporation (TGT - Get Report) battle for market share, smaller retailers are being tossed to the bottom by customers.
"As the retail industry undergoes fundamental structural change, we believe the bigger competitors will continue to consolidate their grip over a broad swath of smaller competitors, leading to further defaults and consolidation among lower-rated, less diversified, more highly leveraged retailers," Moody's Investors Service said in a Monday, July 24, note.
Moody's analysts Charles O'Shea, Oliver Alcantara and Janice Hofferber said it is becoming increasingly apparent "just how vulnerable" smaller retailers, including J. Crew Group, Tiffany & Co. (TIF - Get Report) and Abercrombie & Fitch (ANF - Get Report) , are in "challenged sectors" like apparel, department stores and consumer electronics against rising competition from Amazon, Walmart, Best Buy and Target.
"For 'challenged' bricks-and-mortar retailers, the situation is becoming more dire," O'Shea, Alcantara and Hofferber wrote.
Moody's wrote that despite recording a slowdown in revenue growth compared to past financial periods in their most-recent first quarters, Amazon and Walmart generated a combined $5.4 billion in retail revenue, "more than the annual revenue of all of our Caa/Ca companies, except Sears Holdings Corp. (SHLD) ."
"Walmart's first-quarter sales growth of a little over $2.3 billion (just over 1% growth) may seem modest, but that one-quarter worth of growth is roughly the annual revenue of J. Crew," O'Shea, Alcantara and Hofferber wrote.
In North America alone, Amazon's first-quarter retail revenue climbed to $4.5 billion, more or less equivalent to upscale apparel retailer Neiman Marcus Group's total annual revenue. And, Moody's had a message for lofty retailers such as Neiman Marcus, too: It's, get off your high horse and realize that your competitors include discounters like Walmart and Target.
"Many retailers are doing a poor job assessing who their competitors really are," O'Shea, Alcantara and Hofferber said. "Unfortunately, too many smaller competitors seem to believe their competitiveness is much narrower and more predictable than it really is. For instance, an upscale retailer may believe its competition to be other upscale, potentially larger, apparel retailers. This is rarely the case."