Is this a reason to sell Wesfarmers Ltd?

Richard Goyder, the Managing Director of Wesfarmers Ltd (ASX: WES) which owns Coles, Target, Kmart, Bunnings and Officeworks has again warned of the threat online retailer Amazon poses to Wesfarmers’ retail empire.

The latest warning came this week in an address to the Press Club, however Goyder is also on record as stating the same concern late last year in an address to the American Chamber of Commerce. At the time, Goyder warned:

“If Wesfarmers is not strong, lean, dynamic, creative and innovative then Amazon will eat our lunch.”

It would appear that little has changed in the intervening period with Goyder obviously still concerned about the threat Amazon could have on Wesfarmers’ bricks-and-mortar business model. In fact the threat is so great that he views Amazon as his main competitive threat, rather than local rival Woolworths Limited (ASX: WOW)!

Time to sell?

It’s certainly true that Amazon has played havoc with the traditional business models of retailers around the world. However, for investors in blue-chip retailers, Wesfarmers and Woolworths, it is arguably more a case of being alert rather than being alarmed.

By remaining alert to the competitive threat online poses, investors can monitor for any structural changes. Equally importantly, investors can also monitor both firms’ responses to competition.

In Woolworths’ case, the supermarket giant has already built an effective home delivery service which should provide some buffer, although the profitability of this venture needs to be monitored.

In the case of Wesfarmers, investors should be pleased to read that Goyder is alert to these competitive threats; monitoring how the management team responds will be the key.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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