The Australian retail sector has taken a dive over the course of 2017 due to soft consumer confidence, atrocious real wage growth, and growing levels of consumer debt.
As a result many retailers have coughed up big downgrades to sales forecasts over 2017, including department store operator Myer Holdings Ltd (ASX: MYR), luxury goods retailer Oroton Group Ltd (ASX: ORL) and footwear specialist RCG Corporation Ltd (ASX: RCG).
Adding to the downward pressure on share prices was the April announcement of U.S. online retail giant Amazon that it intends to start selling its vast product selection from within Australia soon.
In fact it seems Amazon might be very close to starting retail operations in Australia, as it's on a big recruitment drive Down Under with 136 open job postings in Sydney alone, according to its own website.
Its Melbourne operations currently only advertise 10 job openings, but online recruitment website SEEK Limited (ASX: SEK) is advertising for an Amazon "Area Manager" in Melbourne in a physical warehouse role with the firm warning the role could include standing and walking up to "10 to 12 hours a day" as its facilities "are over a quarter mile in length".
If Amazon is advertising for warehouse staff it's likely its move to start distributing goods from in Australia could be within the next six months, which means even more pressure is about to be heaped on Australia's retailers.
The kind of goods it might be delivering on the fast and cheap are those sold by the likes of JB Hi-Fi Limited (ASX: JBH), or fast-fashion retailer Premier Investments Limited (ASX: PMV).
In the past the News Ltd press has reported that Amazon has been advertising for Amazon Fresh roles in Brisbane, with Amazon Fresh being its quick and cheap food delivery service.
This spells bad news for investors in supermarket operators Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES), whom are already seeing their world-leading margins come under pressure due to the entry of overseas discounters like Aldi and Costco.
Woolworths shares are down 5% over the last 5 years and given the ongoing structural changes in the supermarkets sector I expect sideways returns will be offered up over the 5 years ahead.
Wesfarmers' Coles supermarkets are also seeing same-store sales growth slide, which means it looks a modest investment opportunity over the next 5 years, although preferable to Woolworths in my opinion.
Another business likely to come under pressure is wholesale groceries distributor and IGA store operator Metcash Limited (ASX: MTS).
Given the arrival of Amazon and weak retail conditions in Australia investors will need to tread very carefully in the sector over the next 12 to 36 months. In fact it might be worth giving the retail sector a miss given how many other investment opportunities are available on the ASX.
