Profit margins at several ASX-listed retailers could be squeezed further as several are taking Amazon.com, Inc. head-on with their own sales blitz to counter the online shopping giant’s Prime Day Promotion, which is tipped to generate sales of up to US$5 billion for the US company.
But investors aren’t fazed. The consumer discretionary sector is outperforming with a near 2% gain today even as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index shed 0.7%.
The JB Hi-Fi Limited (ASX: JBH) share price jumped 1.3% to $28.81, the Harvey Norman Holdings Limited (ASX: HVN) share price gained 1.7% to $4.23 and the Super Retail Group Ltd (ASX: SUL) share price added 1% to $9.51 even as Amazon’s big sales event kicked off today.
ASX retailers fighting Amazon.com
ASX retailers like Kogan.com Ltd (ASX: KGN), JB Hi-Fi and Myer Holdings Ltd (ASX: MYR) aren’t taking things lying down as they have also announced 24 to 48-hour sales events of their own, according to the Australian Financial Review.
Online retailer Catch Group, which is about to be sold to Wesfarmers Ltd (ASX: WES), is also joining in the sales frenzy.
This shows how vulnerable retailers are feeling as they feel compelled to use any excuse to launch a new sales event.
Profits of local retailers are already being squeezed by rising costs and the depreciating Aussie dollar, although recent interest rate reductions by our central bank, the federal government’s tax cuts and the lowering of the deeming rate (which will lift pension payments) will help stimulate consumption – or so retailers hope.
Retail subscription model
The Prime Day promotion offers discounts to Australian Amazon Prime members and local Aussies are also allowed to participate in the US Prime Day event too, which starts later tonight.
The Prime subscription is seen as a key to the success of Amazon in Australia as Prime members spend more than double the amount on Amazon compared to non-Prime members. Prime Day is used as a recruitment drive by Amazon.
Local retailers are trying to follow a similar strategy. Catch Group also has a membership business while David Jones is believed to be launching a loyalty program.
However, it’s tricky for bricks and mortar retailers to compete on price against the likes of Amazon as traditional retailers have a higher cost base. This means they can’t outdo Amazon on discounts and their only real option to win customers is to focus on providing great in-store experience.
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The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Kogan.com 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.