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Citigroup picks its FY19 retail winners and losers from

The challenging conditions faced by our retail stocks aren’t likely to abate in the new financial year as US online shopping titan steps up the pressure in its pursuit of market share, but not all consumer-facing companies will come out worst for wear, according to Citigroup.

Amazon has so far had as much impact on the local retail industry as a wet squid, in my view. A weak selection of goods and unappealing pricing made for a pretty disappointing market debut, although this is starting to change.

Hopefully our local retailers haven’t gotten complacent. Citigroup believes Amazon is investing for the long-term (I think that’s code for moving slowly).

“The third party (3P) marketplace is expanding and we expect Amazon to attract greater first party (1P) supply post Prime launch,” said Citigroup.

“Higher traffic levels will increase the impact of Amazon’s price matching approach, which places their price index ~17% below individual retailers. We continue to expect Amazon to erode pricing and margins for some retailers, beginning in FY20e.”

Amazon Prime is the subscription service that gives consumers additional perks and benefits. While prices of goods from 3P sellers (independent sellers) are not always cheaper than Australian retailers, its 1P (goods it stocks and supplies directly) products are.

This doesn’t mean Amazon is not having a big impact even if it isn’t able to offer the best prices on a week to week basis. Amazon will create extra pressure on our retailers to price-match while limiting the effectiveness of promotions, noted the Citigroup.

Amazon’s range of products, particularly 1P, is likely to expand significantly in the next six months as it opens its 43,000 square meter distribution centre in Sydney.

In the meantime, local sellers should use the calm before the storm to beef up their defences although some of our listed retailers have little to fear.

Footwear retailer Accent Group Ltd (ASX: AX1) is one such example with Citigroup pointing out that Amazon has been unable to secure exclusive and new footwear styles.

Outdoor and auto accessories retailer Super Retail Group Ltd (ASX: SUL) and baby products group Baby Bunting Group Ltd (ASX: BBN) also appear to be relatively insulated from the Amazon onslaught as the online retailer has only limited success in getting suppliers to these two businesses on its platform.

Meanwhile, stationary and apparel retailer Premier Investments Limited (ASX: PMV) and light fittings company Beacon Lighting Group Ltd (ASX: BLX) could actually benefit from Amazon’s platform as they could gain incremental sales through Amazon’s 3P marketplace.

On the flipside, the retailers facing the biggest risk from Amazon include department store Myer Holdings Ltd (ASX: MYR) and electrical and household appliance retailers JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN).

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of Super Retail Group 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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