The retail sector is one of the hardest to gain a competitive edge in. It has low barriers to entry but high barriers to be one of the best.
Typical bricks and mortar retail stores are under siege from all sides. The Australian retail sector is sluggish at best. Amazon is growing its presence in Australia after officially starting its retail offering a few months ago. Other online-only businesses are also making changes to the industry like Kogan.Com Ltd (ASX: KGN).
There are two ways to truly win in this changing environment. Either the company needs to be among the best or have a niche to offer the consumer.
Here are three retail shares that I think fit the bill:
BWX Limited (ASX: BWX)
BWX is the owner and manufacturer of several leading natural beauty brands such as Sukin, Andalou Naturals and Mineral Fusion.
Operating in the natural beauty area is already a niche and BWX produces its own unique products. People are making the switch to natural beauty because they want products that are better for themselves and the environment.
BWX recently reported a half-year result that disappointed the market. I believe the current share price is a very good opportunity as BWX is expected to grow strongly internationally over the coming years.
Bapcor Ltd (ASX: BAP)
Bapcor is Australia's leading auto parts company with its Burson and Autobarn brands. The company is growing its own brands sales to defend its market position. For its trade part of the business it is targeting 30% own brand and it's currently sitting at 22%.
The company also has plans to increase the number of Bursons from 163 to 200 and the number of Autobarns to 200 from 124. Autobarn is targeting 35% own brands from the current 16%.
Bapcor has a good relationship with car mechanics and has an order-to-delivery target of two hours. The business will be expanding into Asia later in the year too.
Greencross Limited (ASX: GXL)
Greencross is the largest pet company in Australia with the leading market share. Its Petbarns and Greencross vets are spread across Australia. Greencross is growing its business in a variety of ways including through pet insurance, pet grooming and its online offering.
Online sales grew by 92% in its latest report and now represents 3.4% of Australian retail sales. Private label sales now represent 21% of Australian retail product sales.
The company has clever idea of co-locating a Greencross vet inside a Petbarn which should allow both businesses to cross-sell to each other's customers and save on costs.
Foolish takeaway
I'm fans of all three of these retail businesses, which is why I'm a shareholder in all three. At the current prices I'd say all three are a buy, although BWX and Greencross probably have longer-term growth futures. Bapcor could suffer from the rise of electric vehicles.
