Did you ride the retail euphoria on Tuesday?
Investors, thrilled that Amazon’s much publicised Australia launch appeared to fizzle, piled into Aussie retail stocks.
On Wednesday The Age ran the headline, ‘Amazon launch a “non-event”’.
Initial prices offered by the online retailing giant were not as cheap as expected. And the stock selection was also not as massive as local retailers had feared.
JB Hi-Fi Limited [ASX:JBH] shares gained 6.76% Tuesday. While Harvey Norman Holdings Limited [ASX:HVN] stock closed the day up 6.25%.
These were the top two performers in the sector. But most other retailers gained as well.
Day traders rejoice!
Long term investors…you might want to take a look at the bigger picture.
With all the hype preceding Amazon’s launch Down Under, a bit of pushback ‘fizzle hype’ was to be expected.
But remember, Tuesday was only day one.
Yes, there may have been a somewhat limited stock supply. And some initial prices were higher than predicted. Yet Amazon still said its first day orders in Australia represented its biggest international opening to date.
Wednesday already saw investors take some of Tuesday’s profits off the table. JB Hi-Fi fell 1.48%, while shares in Harvey Norman lost 2.12% on Wednesday. The decline continued yesterday, with JB Hi-Fi down 0.39%, while Harvey Norman closed down 1.20%.
Now both of these are quality companies. And at a price to earnings (PE) ratio of 10.32 times, Harvey Norman stock looks pretty cheap. (Woolworths Limited [ASX:WOW], by comparison, is trading at a PE of 24.41 times.)
But the writing on the wall spells more troubles ahead.
Whether or not Amazon’s launch was a ‘non-event’, the US company is here for the long haul. You can expect their prices to go down, and the product range to balloon over the coming months.
And the company doesn’t even plan to roll out its Amazon Prime service until the middle of next year. That service offers paid subscribers lower — and sometimes free — deliveries.
If you need any more reason to tread cautiously with your retail investments, the latest quarterly economic figures came in Wednesday.
GDP (gross domestic product) was up a modest 0.6% for the September quarter. That brings annual growth to 2.8%.
Household consumption, on the other hand, only grew by 0.1%. That’s the lowest growth rate since 2008.
You remember 2008, right?