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Big global retailer abandons Australia, retail disruption averted

A big global retailer has abandoned Australia, which means that ASX retailers have averted disruption.

According to reporting by the Australian Financial Review, global retailing giant Kaufland has decided to quit Australia before it has even made a sale.   

Who is Kaufland? It’s owned by Schwarz Group, the fourth biggest retailer in the world. Kaufland itself is like Costco, you could say it’s a mix of a supermarket and a discount store. Schwarz Group also owns Lidl and Handelshof.

So, who is this good news for? Clearly it’s good for most of the ASX’s biggest retailers like Woolworths Group Ltd (ASX: WOW), Coles Group Limited (ASX: COL), Wesfarmers Ltd (ASX: WES), Metcash Limited (ASX: MTS) and so on. Aldi also avoids the additional competition.

Competition is good for consumers. But it can lower profit margins and/or the market share for the retail businesses.

It was thought that Kaufland would open in late 2019 after acquiring a number of locations across Victoria, South Australia, New South Wales and Queensland. It had also started on a $460 million distribution centre.

Instead, Kaufland is going to be focusing on Europe where it still sees a lot of growth potential.

It remains to be seen if we’ll ever see Lidl here. Aldi has been very successful and I’d imagine that Lidl could do quite well here too. Australia is not a huge market like Europe or North America, but supermarket businesses are able to achieve solid margins here.

Foolish takeaway

Whilst it’s a shame for Kaufland Australia employees, the rest of the retail sector can breathe a sigh of relief that a major competitor will not be coming here. It’s things like this that can help you realise how important having a strong economic moat is.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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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