Will Amazon strike again?

It has become a norm these days that whenever Amazon touches something, the companies for the thing will falter. We have seen this again and again, mostly in retail business, especially those relying brick & mortar stores. It is truly disruptive! You may have also noticed that in the past week or so, pharmacy stocks have been hit hard. Yes, again, it is related to the rumor that Amazon may decide to get into the online pharmacy business in the next few weeks. You can imagine how retail pharmacy investors are worried about their companies’ future. They run first.

 

If indeed Amazon wants to get into the pharmacy business, how will it do it? Sure, Amazon may just want to set it up from scratch by doing everything by itself. But pharmacy business is a highly regulated one and it could be a huge challenge for Amazon to jump into it directly. After seeing what it has done with Whole Foods for the grocery business, I’m thinking loud that there is a reasonable chance that Amazon may also want to jump start by buying a retail pharmacy company. This will allow Amazon to take off the regulatory risk immediately and deep dive into the business much smoothly. If my speculation comes true, which one may be the target of Amazon? There are 3 major retail pharmacy companies coming into my mind immediately. The two pharmacy giants, CVS and Walgreen, are the most popular ones and they are available almost every corner of streets across the country. Both of them are very well run and very profitable but they are not cheap at all. I think it is less likely Amazon will take either of them but if you ask me which one is more likely between the two, I’d say Walgreens. While both companies are very comparable in almost all the parameters, Walgreens has much less debt on its book than CVS, roughly one time less. But anyway, I don’t think it is likely for either of them.

 

I think the more likely target for Amazon is probably Rite Aid (RAD). Well, you may even have not heard of it or rarely seen it on the street. Indeed, it is a poorly run much smaller retail pharmacy and actually on the verge of bankruptcy to some extent. It is heavily in debt. So why am I thinking this is more possible a target for Amazon to take? Well, it all comes down to the reason why Amazon wants to buy a retail pharmacy in the first place. I don’t think Amazon is too much cared about the popularity and profitability of the pharmacy as it will make it popular and profitable. Due to the nature of the online business, it also does not need to have too many retail stores as it could be a huge management burden for Amazon. All it needs is to bypass the regulation hurdles as quickly as possible.  And for that purpose, a small and much cheap Rite Aid may service Amazon much better. Of course this is purely a speculation from my wild imagination and you don’t need to take it seriously. But also don’t be surprised if you suddenly hear the announcement that Amazon is taking over Rite Aid!