The retail world is ablaze with talk of Amazon coming to Australia. Almost every retail share on the ASX has seen its share price knocked down a peg.
One of those hurt has been Greencross Limited (ASX: GXL). I think this is actually a good opportunity to buy Greencross shares for the following reasons:
Co-location strategy
A few years ago Greencross took the step to acquire the Petbarn chain, which is like a Bunnings for pets.
Greencross wants to be the leader of the pet market, so this was a good move. However, Greencross are really maximising the purchase by doing a co-location strategy.
The strategy involves installing a Greencross vet inside a Petbarn. This should save on rental costs and allow each business to cross-sell services to customers of the other business.
The business has a long-term target of having a vet inside 60% of its retail stores. The opportunity could be as large as having more than 120 in-store clinics.
I think it's a really clever strategy and a bonus is that it's significantly cheaper than acquiring an existing vet clinic.
Pet industry is growing
Greencross is in an exciting industry, the pet industry is one of the fastest growing sectors. Since 2013 annual spend per dog has increased by 33% to $1,475 and annual spend per cat has increased by 35% to $1,029.
Greencross is selling everything you could think of related to pets, some of the other services it sells includes grooming, pet insurance, puppy school and pet hotel bookings.
International peers doing well
There is a company in the UK with a similar strategy as Greencross called Pets at Home.
Amazon has been operating in the UK for many years, yet Pets at Home has actually excelled and kept growing during this time. I think there will be a few product areas like accessories which may suffer margin pressure, but the rest of the Greencross business should be okay.
Foolish takeaway
Greencross is currently trading at 14x FY18's estimated earnings, which I think is good value for a business still growing its top and bottom lines at a good rate.
