Unless you have been living under a rock, then you have likely heard about Amazon (NASDAQ: AMZN) buying Whole Foods (NYSE: WFM) for $13.7 billion. The initial reports of this sent retail stocks lower on fears that Amazon would continue to dominate the space. Wal-Mart (NYSE: WMT) fell almost 3% on the news along with many other "competitors" of the online ecommerce site.
Thursday it was announced that the deal would be completed by Monday which was well ahead of schedule. In the statement Amazon also stated that it would cut prices on a wide range of products at Whole Foods following the completion of the deal. This was a big deal to stocks like Costco (NASDAQ: COST) because Whole Foods was largely seen as a premium grocer and budget conscious, Costco shoppers were not as likely to visit Whole Foods. With the news of the cost cuts investors feared that this makes Whole Foods more completive in their space.
Shares of Costco sold off 5.04% on Thursday, closing right at their lows of the session. Investors noted that the volume was well above average and the selling pressure was consistent throughout the day. Shares have been under pressure since hitting a high back in June. Since those highs shares are off over 17% and this Amazon news hasn't helped. So does this deal really spell trouble for Costco?
There are two ways to look at this if you are a Costco investor. In the short term there is still too much of a contrast in the types of consumers that shop at Costco vs. Whole Foods. While everyone expects Amazon to creatively woo the Costco, Sam's Club, and Wal-Mart market customer, for now there is just too much contrast. In the long run it is clear that Amazon has a history of attracting the "deal buyer." Over time you just know that Amazon will dial in their grocery game and look to span the consumer spectrum as they have with their other offerings.