Is Now The Time to Dump All Your Retail Stocks?

Any business that has found Amazon.com, Inc. (NASDAQ:AMZN) making a serious bid for its territory knows it has a life-and-death fight on its hands.

| More on:

Photo: Fool Editorial. All rights reserved.

These are tough times to be a retailer, as the potential bankruptcy of Toys R Us is an uncomfortable reminder.

Whether the company is selling toys, clothing, electronics, books and now even food, the internet is taking a bite of their business.

We all love the ease and simplicity of shopping online, and the discounts that sites such as global behemoth Amazon (NASDAQ: AMZN) are now able to offer us.

However, there is a price to be paid, in this case the death of the high street and the shopping mall.

Investors need to take a close look at their portfolios to see whether the web could kill off their retail holdings.

Retail therapy

Toys R Us made a net loss of $164m in the first quarter of 2017 and now has debts totalling a hefty $400m.

Same-store sales have fallen for three consecutive quarters as shoppers choose to have fun online rather than trudge to one of its big box store in their local retail park or shopping centre.

Toys R Us had already a bruising encounter with all-powerful Amazon, after striking an exclusive deal in 2000 to exclusively supply toys to the site.

It ended in an ugly legal battle after the online giant allowed rival toy stores on its site.

Amazon was expected to be the big loser but it didn’t turn out that way.

Fire sale

Toys R Us is hardly alone in succumbing to the power of the world wide web. Remember video rental stores? High street record shops? Local bookstores? All were strangled in the net.

A string of big-name companies are vulnerable to Amazon. They simply do not have the firepower to fight back.

Office supplies stores Staples, wholesaler Costco, lingerie specialists Victoria’s Secret, book chain Barnes & Noble and shoe retailer Foot Locker are just some of the businesses that could soon be feeling the heat. Amazon is ruthless, they can expect no mercy from that quarter.

Food fight

Next it could be the turn of the big grocery chains, following the Amazon tie-up with Whole Foods.

There are doubts over whether people will be willing to buy perishable food items online, although many are already ordering food online from their existing supermarket.

Amazon is willing to sacrifice profits today for market dominance tomorrow, so you cannot rule out success here as well.

There is a reason why founder Jeff Bezos briefly leapfrogged Bill Gates in July to become the world’s richest man with a fortune of more than $90bn, just 22 years after he started selling books from his garage.

One winner

Any business that has found Amazon making a serious bid for its territory knows it has a life-and-death fight on its hands.

Some will survive, others, like Toys R Us, will find that Amazon isn’t playing for fun, it is playing to win. Could it kill off any retail stocks in your portfolio?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Harvey Jones has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon.

More on Investing

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »