Now the impact from comes to Australia where investors have been made more nervous this year by a series of alarmist reports from investment banks about the threat from which Amazon which shocked Wall Street on Friday with plans to buy the giant organic food supermarket chain, Whole Foods Market for $US13.7 billion ($A18 billion), or $US42 a share in cash.
A series of at least three alarmist broking reports about the threat posed to local retailers by the arrival of Amazon (and a clutch of equally silly media reports) has seen a big sell-off in retail stocks in the past four months.
So does the Whole Foods takeover – once completed – change the picture? Initially the reaction will not be pretty for some listed retailers as investors panic in the belief their worst fears about Amazon have been met.
But have they? The Whole Foods deal is focused more on the US especially, plus Canada and the UK where Whole Foods has over 460 outlets.
And this is Amazon’s biggest deal, there is a lot riding on it, even for a company as large and fast growing as the company that has done a lot of legacy retailers considerable harm.
And that will need a lot of attention from senior managers led by CEO, Jeff Bezos to execute the integration with Amazon’s warehouses and logistics systems, and turn around Whole Foods lacklustre performance.
Until now Amazon has tested the grocery concept with two AmazonFresh Pickup sites and an Amazon Go Store in its hometown of Seattle, but has problems with the technology involved.
Whole Foods has been floundering in the past couple of years and in the three months to March reported a 1.1% rise in revenue to $US3.7 billion in its most recent quarter, but saw profits slide 30% to just $US99 million.
Whole Foods has about 465 locations, about 444 in the United States, 12 stores in Canada, and nine stores in the United Kingdom. There are 87,000 employees in 12 regions, according to the company.
In 2016 revenue edged up to $US15.7 billion, but net profit at $US507 million was the lowest since 2013 as sales growth slowest, costs rose and the management was unable to halt the erosion of profit margins.
So Amazon will have whip Whole Foods into shape as well as integrating into its business and should this take longer, or not be controlled, investors who are growing nervous about overvalued tech stocks, won’t think twice about selling and taking their profits.
And they have big profits – Amazon shares are up nearly 32% so far this year and closed at $US987.71 on Friday, having failed to rebuild the losses from the mini-sell off the week before when they topped the $US1,000 level briefly.
But that Friday’s close gave the company a market value of $US472 billion which has been built on Amazon’s reputation for good management for driving growth and executing strategies.
So watch the initial negative reaction hit the shares of a host of Australian retailers from today – Woolworths (with its troubled and Big W chain), Metcash, Super Retail, Bapcor, The Reject Shop, Harvey Norman, Jb Hi Fi, Super Retail Group and Wesfarmers (Coles, Kmart and its troubled Target chain).
Woolworths shares closed at 26.25 on Friday (value $33.9 billion), Wesfarmers, which closed at $40.70 (value $46.1 billion), Metcash which closed at $2.15 (worth $2.1 billion), Super Retail Group, up 2.2% on Friday to $8.28 (worth $1.63 billion), Harvey Norman, which closed at $3.90 on Friday (worth $4.3 billion) JB Hi Fi (which closed at $23.30, up 2.2% (and worth $2.67 billion) and Bapcor, up 2.4% on Friday to $5.32 and worth 1.48 billion.
Most of these retailers are within days of the end of their financial year (around June 30), so their shares will be under pressure on two fronts – performance in a tough consumer shy market in the past year, and the supposed threat from Amazon – on top of the continuing pressures from Aldi for the likes of Woolies, Coles and Metcash.
Metcash is in fact due to report its annual results for the year to April 30 a week today and the Amazon news will see investors wonder about its future next year as Amazon arrives with a major grocery offer to be made available.
Super Retail Group shares climbed 12.6% week, boosted by a 4.5% jump on Thursday alone as investors reassessed the supposed threat from Amazon.
Analysts have suggested that Super Retail Group may have been oversold in recent times as the threat of global online retail firm Amazon looms over the Australian market.
Chairman Robert Wright stepped down last Tuesday, after eight years in the role. He will be replaced by non-executive director Dr Sally Pitkin at the annual general meeting in October.
In February, the retailer recorded a 66% lift in half-year profit to $74.4 million thanks as it got its troubled boating, camping and fishing business under control and and cut costs and losses.
That big gain last week will come under pressure from today. And it won’t be alone.
