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David vs Goliath: Gazal Corporation Limited versus Wesfarmers Ltd

Not many investors would have heard about Gazal Corporation Limited (ASX: GZL), despite the company boasting a market cap above $150 million.

Shares are thinly traded – around 3,000 shares or less than $10,000 worth of shares exchange hands on average each trading day.

But the company is now in direct competition with one of the behemoths of Australian retailing – Wesfarmers Ltd (ASX: WES) – the owner of Coles, Kmart, Target amongst other businesses.

Gazal is in the fashion business, with its own brands as well as exclusive distribution deals for brands such as Calvin Klein, Van Heusen and Pierre Cardin.

One of its own brands, Bisley, specialises in work wear, including protective and safety clothing and apparel, such as for fly-in, fly-out workers, construction workers, tradies and the like. Bisley also boasts The Block’s Scott Cam as brand ambassador, but is about to face some serious competition.

Recently, Wesfarmers acquired Pacific Brands Limited’ (ASX: PBG) workwear division, including well-known brands such as King Gee, Stubbies and Hard Yakka. While Pacific Brands may have been unable to drive the workwear division as hard as it would like, the deeper pockets of giant Wesfarmers will surely see stronger competition in the work wear sector.

Wesfarmers is still awaiting Australian Competition and Consumer Commission (ACCC) clearance for the acquisition, expected to be later next month.

Gazal is already preparing for the fight, recently launching a range of new products, before Wesfarmers has a chance to bring its significant weight to bare.

The company will need to invest plenty to arrest three years of sliding sales in the former Pacific Brands’ workwear division. Wesfarmers’ Industrial and Safety Division managing director Olivier Chretien has already warned that significant investment would be needed in the King Gee and Hard Yakka brands over the next 2 years or so.

But there are more than 80 brands competing in the workwear division, and tradies are known to be fiercely loyal to the brands they regard as high quality.

Gazal has a fight on its hands, but the retailer is facing one of the Goliaths of the industry. Who are you rooting for?

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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