Should you buy Harvey Norman and JB Hi-Fi shares?

The last 12 months certainly haven’t been easy for shareholders of Harvey Norman Holdings Limited (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH).

During this time the shares of these retailers have fallen a disappointing 26% and 21%, respectively.

This compares to a decline of 7.3% for the ASX 200.

Why have Harvey Norman and JB Hi-Fi shares been hammered?

One major catalyst for the selloff has been the negative impact of the cooling housing market on their businesses.

Not only does this appear to have hit consumer spending, it has also led to a decline in the sale of household items such as appliances and furniture.

Incidentally, the Nick Scali Limited (ASX: NCK) share price has also fallen hard, losing approximately 25% of its value over the period.

At its annual general meeting the furniture retailer warned that “same store sales growth will be challenging in this volatile trading environment, particularly given the significant slow-down in residential sales, a key driver and catalyst for furniture sales.”

Unfortunately, with the housing market showing little sign of improving in the near term, I suspect that these headwinds will persist for a little while longer.

In addition to this, the two retailers have faced increasing competition online from the likes of Ltd (ASX: KGN) and U.S. behemoth Amazon.

And given how more and more retail sales are expected to shift over to online in the coming decade, I wouldn’t expect this headwind to ease any time soon either.

Should you invest?

I think Harvey Norman and JB Hi-Fi are quality businesses with a strong retail presence and long track records.

However, even though they trade at just 10x earnings at present, until trading conditions improve for them I’m going to focus my attention elsewhere in the market at shares that are expected to deliver strong earnings growth over the near term.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon. The Motley Fool Australia has recommended Amazon and ltd. 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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