Here are my favourite 2 retail shares

The retail sector is a very competitive one. It has quite low barriers of entry which means anyone with a decent chunk of capital could enter the market.

Therefore, to be successful in the industry you have to offer excellent value, unique products or quality service. This is particularly important as more online-only competitors enter the market like Amazon.

With that in mind, here are two retail-related shares I like:

Bapcor Ltd (ASX: BAP)

Bapcor is Australia’s leading auto parts business. Most of its earnings come from its Burson Trade business and the Autobarn chain. It offers mechanics 2-hour delivery for items they need, which Amazon will find hard to match for quite a while.

In the six months to 31 December 2017 Burson Trade registered revenue growth of 6.6% and earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 8.7%. It achieved this with an increase of seven stores and same store sales growth of 3.4%.

Meanwhile, the retail segment achieved revenue growth of 5.4% and same store sales growth of 5% in the company-owned store, management are looking to increase company-owned Autobarn stores. As the stores mature it should hopefully lead to higher EBITDA.

I like Bapcor because it is achieving profit margin growth, higher revenues and it has plans to increase the number of stores over the next five years. The target is to grow to 200 Burson stores from 163 and achieve 200 Autobarn stores from the current 124. Finally, Bapcor is starting to expand into Asia, it could have up to six by the end of 2018.

BWX Limited (ASX: BWX)

BWX is Australia’s largest natural beauty business. Its products are sold in pharmacies across the country and recently have entered Wesfarmers Ltd’s (ASX: WES) Coles supermarkets.

According to industry estimates, the global beauty & personal care sector is expected to grow to $616 billion by 2022, with a CAGR of 5.5% between 2017 and 2022. However, the natural beauty and personal care sector has been growing at a CAGR of 14% since 2015.

BWX has gone on an acquisition streak over the last year and now has several brands it can grow in different regions. Mineral Fusion and Andalou Naturals are both growing well in the USA, if BWX can get Sukin into the huge US market then the business could do well.

Of course, Canada, the UK and Asia markets could all turn BWX into a much bigger business if it can take a decent slice of the beauty market in any of those regions.

BWX may have registered smaller profit growth than it would have liked in the half-year result, but in three years’ time BWX could be a much bigger business.

Foolish takeaway

At the current prices I believe both BWX and Bapcor offer investors good value for money. I think there’s a good chance they will beat the ASX index over the next five years, which is why I already own them in my portfolio.

Want even more growth ideas? These top growth shares are all expected to deliver exciting profit growth over the coming years.

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Motley Fool contributor Tristan Harrison owns shares of Bapcor and BWX Limited. The Motley Fool Australia owns shares of and has recommended Bapcor, BWX Limited, and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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