The long-awaited arrival of the Amazon behemoth is finally close at hand. Should all retail businesses now run for the hills?
Not according to the retail legend behind Harvey Norman Holdings Limited (ASX: HVN), Gerry Harvey. He thinks Amazon will find it harder to conquer Australia, particularly with our higher wages, stricter rules and geographically large country.
His plan involves at least price matching or even price beating Amazon. That may be fairly easy for him to say, but it's the individual Harvey Norman stores that will be the battleground.
Suffice to say, decreasing prices is great for customers and good for Harvey Norman's market share, but it could be a big drain on profit margins.
I am a fan of Australian business, but it's going to be hard for many retail businesses like Harvey Norman, JB Hi-Fi Limited (ASX: JBH), Woolworths Limited (ASX: WOW) and others to grow profits. If they can't grow profit then the share price won't grow much.
Woolworths is trading at 22x FY17's estimated earnings, JB Hi-Fi is trading at 14x FY17's estimated earnings and Harvey Norman is trading at 11.5x FY17's estimated earnings.
However, Amazon isn't the only problem on the horizon for Aussie retailers. Retail is a cyclical industry that rises and falls with the overall economy. The amount of debt that Australians have built up, combined with the slowing job market and several other factors raises some more question marks for me.
I don't think that every single retail business is under pressure. BWX Ltd (ASX: BWX), Afterpay Holdings Ltd (ASX: AFY) and Greencross Limited (ASX: GXL) all have growing retail businesses.
However, I think there are both cyclical and fundamental changes that are happening that are going to impact the retail industry over the next few years. I am staying away from nearly all retail businesses because they don't have any competitive advantage that can't be replicated online.
I wouldn't want to hold retail stocks, instead I'd want to hold one of these three fast growing businesses that could do very well over the next five years.
