Wesfarmers Banks on In-Store Experience to Compete against Amazon
This morning, Wesfarmers Ltd [ASX:WES] fell more than 1%, to $39.83 per share. The retail giant is now down 5.48% as investors sell out on fears of competition from Amazon.com Inc. [NASDAQ:AMZN].
Yesterday, Wesfarmers had their 2017 Strategy Briefing Day. Directors from all divisions told investors and shareholders what they planned to do in the near future.
According to The Australian Financial Review:
‘Wesfarmers is banking on its 4000-odd bricks and mortar stores and diverse portfolio to defend itself against new competitors including Amazon as it battles the toughest retail conditions in 30 years.
‘Outgoing Wesfarmers chief executive Richard Goyder says the $47 billion conglomerate is confident of maintaining its long-term record of delivering above-average returns to shareholders and has downplayed concerns the group is particularly vulnerable to Amazon or overly exposed to cautious consumers.’
Goyder told investors:
‘Every day we’re dealing with new competitive threats, new regulatory threats. All I’d say is that sometimes it’s easy to look at new competition and say the world is coming to an end — if you look at a business with good people, good brands and good cash flows that’s not a bad starting position to take on new competitors.’
A Morgan Stanley report claims that Wesfarmers’ key retail businesses could lose more than $400 million annually to Amazon. That is definitely a scary thought if you are a shareholder.
But are analysts just over-exaggerating the effect Amazon will have on Wesfarmers?
According to an article in Forbes, retail marketing executives were more worried about organisational inertia and having the right talent on their team. Only 17% of the 100-plus executives surveyed were most worried about the growth of Amazon.
One reason why so few are worried about Amazon is because of the advantage they have over the giant online behemoth — that is, the in-store experience.
‘It’s about in-store demos and bringing your pet into a PetSmart for example for grooming or just to buy food. The CMOs I spoke with all agreed that this is a significant advantage they have over Amazon.
‘Saying almost in unison at one point, it’s about the sense of community.’
However, as our online shopping habits continue to expand, maybe Amazon won’t need to compete against an in-store experience.
I suggest you watch Wesfarmers for now. I, along with various others, have no certain answer to how Amazon will affect Wesfarmers’ bottom line. But if all the talk about ‘the Amazon Affect’ doesn’t hold water, you could potentially bag a couple of great investments in the retail industry.
Junior Analyst, Money Morning
PS: A big reason to invest in blue chips is for income. They offer big dividends, and usually pay out large portions of profits to shareholders.
However, it’s not always the blue chips that have the best dividend yield. Income specialist Matt Hibbard has written a new report — ‘Top 5 Dividend Stocks in Australia for 2017’ — all about the best Aussie dividend stocks.
Some of the stocks Matt mentions pay reliable yields of 6%, 7%, 8% and more. That’s more than 5% what you’d get on an Aussie 10-year bond for just slightly more risk.
To get your free copy of Matt’s report, click here