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Is retail a dying sector?

The bricks and mortar retail industry is finding it increasingly difficult to grow profit in the current environment. This isn’t a good sign considering how many years it has been since Australia has had a recession and how urbanised Australia is.

Australia is dominated by large retail businesses such as Wesfarmers Ltd (ASX: WES), Woolworths Limited (ASX: WOW), Super Retail Group Ltd (ASX: SUL), Premier Investments Limited (ASX: PMV), Scentre Group (ASX: SCG) and Vicinity Centres Re Ltd (ASX: VCX).

Australians often complain about how most products are a lot more expensive here compared to overseas, even when factoring in the exchange rate.

Overseas competitors saw this opportunity and are coming here in droves. Aldi and Costco have already made their presence felt. H&M is just one of many clothing stores coming to Australia to challenge Myer Holdings Ltd (ASX: MYR) and others.

Amazon’s arrival is expected soon. It could completely change the face of retailing in Australia.

The Australian listed retailers will need to be clever to maintain their market share and/or their profitability. Appliances Online has already shown there is demand for online retailing, which could really hurt Harvey Norman Holdings Limited (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH).

It is possible for some retailers to succeed if they offer a superior shopping experience or can concentrate on a niche area of the market. Obviously not every retailer can take this approach so there will be some unavoidable losers.

I think there are some retail businesses that could keep growing profits successfully over the coming years. Greencross Limited (ASX: GXL), RCG Corporation Ltd (ASX: RCG) and Afterpay Holdings Ltd (ASX: AFY) are showing the rest what can be achieved.

Foolish takeaway

I think there is a big opportunity for retail businesses that have a strong online presence. However, businesses that only focus on bricks and mortar retailing could be in big trouble. At this stage I would only consider retail businesses that seem like they can grow sales in the long-term, which isn’t many.

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Motley Fool contributor Tristan Harrison owns shares of Greencross Limited. The Motley Fool Australia owns shares of Greencross Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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