Amazon.com has shaken up US retailers and manufacturers, a trend amplified by the recent purchase of Whole Foods Market. But despite Amazon’s dominance, investors can still find resilient businesses in a vast sector.

Retail sales, excluding auto sales, make up one-fifth of the US economy. In the span of just a decade, Amazon’s market share has grown many times over. The company’s current market share matches that of Costco Wholesale.

MARGIN SQUEEZE

But sales growth only tells part of the story. Look at profitability and you see how Amazon’s squeeze on operating margins is dramatically changing the industry. Amazon operates on modest margins while providing a shopping experience considered superior to that of many traditional in-person stores. In 2016, its operating margin in the US was just 3%, compared to 7% at Target. We believe this margin pressure will persist on traditional retailers.

Manufacturers are also feeling the bite from Amazon. Their normally tense relationship with retailers is becoming even more fraught. Campbell Soup, for example, recently lowered sales expectations because its reluctance to lower prices raised the possibility that its products might be dropped by a major retail competitor of Amazon’s.

Companies like Campbell face pressure on margins from two directions. First, consumers have embraced discounted private-label products. Second, the slimmer margins of retailers make manufacturers’ profitability look bloated (Display). With a margin of 24.4% in 2016 in its US business, Campbell remains lucrative even if growth is scarce. Others, like Colgate-Palmolive, with a US operating margin of 32.4%, are even more profitable. Amazon CEO Jeff Bezos famously vowed to go after profitable industries like manufacturers, saying, “Your margin is my opportunity.”