Amazon is an '800-pound gorilla' scaring away retail IPOs

Amazon is serving notice to retail IPOs.

The announcement today that Amazon would be entering the meal kit delivery business has hammered competitor Blue Apron for another 10-percent decline. It seems like a long time ago, but the company only went public a little more than two weeks ago at $10. It dropped below that on its second day of trading and has been pretty much straight down since then. It broke below $7 this morning.

Wait a minute: Didn't we all know that Amazon was going to get into the meal delivery business? We talked about it leading into the IPO, and particularly after the Amazon-Whole Foods announcement. Everyone knew about this, right?

Apparently not. Down 10 percent on heavy volume tells me someone didn't get the memo. Or they weren't listening.

They're getting it now, and it's leading to a wider discussion within the IPO marketplace: How much can Amazon disrupt other retail operations, particularly those waiting to go public?

"Amazon is the 800-pound gorilla in the room," John Fitzgibbon from IPO Scoop told me. "They have the money and the facilities to make anything work if they want it to."

We may get an early indication of investor demand for retail IPOs this Friday, when PetIQ, a distributor of low-cost pet medications, plans to go public on the NASDAQ this Friday, seeking to raise 5.66 million shares at $14-$16. The company has $200 million in sales and is profitable.

The risk disclosure section of the company's SEC filing acknowledge that competitors could disrupt their business: "We operate in a highly competitive industry and may lose market share or experience margin erosion if we are unable to compete effectively."

Peter Foley | Bloomberg | Getty Images

Jeff Bezos

This is a fairly standard disclosure that is often included in IPO registration statements, but additional statements do highlight how their business can be disrupted. While they do not mention Amazon as a direct competitor, they do note that traditional retailers like Perrigo and companies you may not think of like Nestle, Mars and J.M. Smucker all compete against them in the pet health and wellness category, all of which are far larger than they are: "These competitors may be able to identify and adapt to changes in consumer preferences more quickly than us due to their resources and scale."

There are several other retail and food IPOs in registration that could go public in the next few weeks, including Sun Basket (meal delivery), Torrid (plus-size clothing spinoff from Hot Topic), and FreshDirect (also meal delivery, which has registered in Germany), and Yeti (coolers).

There are also several retailers that have been in registration for a long time and just can't seem to get out of the gate, including Albertsons.

Amazon's aggressive moves won't make any of these easier to get out of the gate, but Kathleen Smith, who runs IPO research firm Renaissance Capital, doesn't think Amazon is the death of retail IPOs.

"There's always some new creative idea that will come through," she told me. She points to J. Jill, which is only slightly below its IPO price of $13 — partly because of its comparatively low valuation but also because of its strong brand loyalty. She also points to flooring retailer Floor & Decor, which went public in April at $21 and is now $39.

Smith also notes that many retailers could end up selling directly to Amazon as well. PetIQ, for its part, already sells to Walmart and Sam's Club, which accounted for 33 percent and 21 percent of net sales in 2016.

Regardless, Amazon's aggressive moves — and the clear impact it has had on retailers since the Whole Foods announcement — have served notice that for a company of the size and scale of Amazon, the barrier to entry for many businesses is not nearly as great as it used to be.

CNBC

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