The market is often pre-occupied with the international growth plans of Australian businesses, so it is interesting to flip the analysis and look at what happens when overseas companies launch here.
Europe, in particular, has been staking claims to Australian retail spending in recent years, and these five ASX stocks are the most exposed to the increased competition from powerful international rivals.
German grocers
Woolworths Limited (ASX: WOW) may have numerous business interests ranging from budget department stores (Big W), liquor (Dan Murphy's and BWS) and pubs and hotels, but the dominant profit engine is undoubtedly the supermarkets division.
It is this division that has seen its margins, and subsequently, earnings, attacked by German discounter, Aldi. While Aldi has been in Australia for well over a decade now, it is only in recent years that it has attained sufficient scale to disrupt the supermarket duopoly of Coles and Woolworths. Aldi's operating model is that of a "hard" discounter, where margins on all products are sacrificed to the bare minimum in order to win customers and increase their spending in store.
By contrast, Woolworths and Coles are "selective" discounters, pursuing promotions on certain product lines and publicising them, in order to attract shoppers in store and then cross-sell higher margin products to them while they are there.
The share price and falling margins earned by Woolworths show that the hard discounting strategy is winning customers, and the potential entry of another German competitor, Lidl, could drive margins even lower.
The exact same forces are also affecting Metcash Limited (ASX: MTS) and Wesfarmers Ltd (ASX: WES) owned Coles, although the latter has shown more resilience and responsiveness to the threat to date.
Faster fashion
Clothes, shoes and accessories retailing have seen perhaps the most European competition emerge in recent years, as foreign companies were attracted to Australia by the strong purchasing power of the Australian consumer.
That has seen the business of Myer Holdings Ltd (ASX: MYR) take several hits.
Top European brands specialising in affordable designer fashion like Zara and H&M have made a big impact, particularly among younger consumers. This has occurred as online retailers, led by UK-based ASOS.com expanded rapidly here. The size of ASOS is staggering, with the online only company turning over in excess of $2.1 billion last year.
The emerging challenger
Super Retail Group Ltd (ASX: SUL) has been largely unaffected by foreign competitors to date, but that could change with the recent entry of French sports retailer, Decathlon, into the market.
Decathlon has been described as "the Aldi of sporting goods" by analysts, and Super Retail owned Rebel Sport and Amart All Sports are the most obviously placed to suffer if Decathlon resonates with the Australian consumer.
It is early days yet, and Decathlon is presently only trading online in Australia, while management searches for suitable sites for its warehouse style stores, but it will be interesting to watch the earnings and margins of Super Retail's sports brands as the French retailer scales up.
Foolish takeaway
Competition is a non-negotiable part of business, but when competitors are better funded, have access to structural advantages, or are able to take a longer-term view of investment decisions and wear losses for a sustained period, then companies competing against them face serious headwinds.
Myer appears to be competing in the toughest segment with the most competitors, while the supermarket companies are likely only part way through their margin compression. However, Super Retail may have the furthest to fall in coming years.
