Here’s a Thriving Canadian Retailer That You’d Least Expect Would Survive the Amazon.com, Inc. Onslaught

Amazon.com, Inc. (NASDAQ:AMZN) has wreaked havoc on the retail industry, and this Canadian business was right in the middle of its cross-hairs, but it survived and it’s thriving. Here’s why investors may want to buy shares of this underdog today.

| More on:

Photo: Fool Editorial. All rights reserved.

Many retailers have been going belly up courtesy of Amazon.com, Inc. (NASDAQ:AMZN) over the years, and I’m sure you’d expect all bookstores would have gone the way of the dodo bird by now. Amazon started out as a bookstore; it’s now the everything store, but books remain a major seller as we move deeper into the digital age.

As a Canadian you’re probably very familiar with Indigo Books & Music Inc. (TSX:IDG), the company behind Indigo and Chapters brick-and-mortar stores. Despite the obvious vulnerability to Amazon since the late 1990s, Indigo has held its ground well, and you probably wouldn’t expect Indigo stock to have surged ~150% over the past four years.

It’s remarkable that the brick-and-mortar retailer, which has been in the middle of Amazon’s crosshairs since the beginning, is still alive and thriving. As fellow Fool contributor Will Ashworth pointed out, buying Indigo on dips over the last five years has been a very profitable endeavour. Of course, hindsight is 20/20. I’d imagine that experiencing a dip in the stock of a book retailer in real time is horrifying, and buying on such double-digit percentage dips requires some serious guts.

It’s not just a bookstore anymore; it’s an awesome one-stop shop for neat gifts and generic merchandise

The main attraction of Indigo isn’t its books. You can find a majority of the books that Indigo sells online at better prices on Amazon that can be delivered to your doorstep overnight, so you don’t have to lug around a bunch of books all over the shopping mall.

It’s the cool merchandise that draws me into its stores. There are cool toys for kids and adults in addition to reading and writing accessories, generic items, like backpacks, and “impulse buy” reading material, like magazines.

The Indigo stores I go to are usually packed full of customers that buy the merchandise as much as the books. I think the management team has done an impeccable job of adapting and driving store traffic at a time when many pundits would have called for Indigo’s downfall at the hands of Amazon over a decade ago.

Indigo can still compete with Amazon in the book department

The Canadian Amazon isn’t at the level of U.S. Amazon yet, and because of this, there are many books that may not be available at a certain time on Amazon, especially new releases that have limited initial availability.

That means Indigo, with its virtual monopoly over Canadian bookstores, can win over Canadian’s business, either through its brick-and-mortar store (if the book is in stock) or through its e-commerce platform.

Bottom line

Indigo a fine example of a business that can adapt in a harsh environment. As the company continues to diversify away from books and into generic merchandise, I suspect the business will continue to fly and co-exist with Amazon.

The stock isn’t cheap at 24.5 times trailing earnings, but if another dip presents itself, you may wish to jump in, especially after a solid Q2 2018.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon.

More on Investing

ETF chart stocks
Stocks for Beginners

2 Canadian ETFs to Buy and Hold Forever in Your TFSA

ETFs are no longer just conservative options. Get into any growth area and consider these two ETFs to gain more…

Read more »

Income and growth financial chart
Investing

This TSX Stock Is Rising, But Is it Still a Buy?

Fairfax Financial Holdings (TSX:FFH) stock still looks incredibly cheap despite doubling in less than two years!

Read more »

dividends grow over time
Dividend Stocks

Want a Chance at Getting Rich? Invest in Dividend Aristocrats

Are you looking for long-term, compounding growth? That's what it'll take to get rich. Yet it doesn't mean investing in…

Read more »

Canadian Dollars
Tech Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Down 61% from all-time highs, Enghouse is a TSX tech stock that offers you a tasty dividend yield of more…

Read more »

A worker uses a double monitor computer screen in an office.
Dividend Stocks

Got $100? 2 Top Canadian Stocks to Buy and Hold

Don't let a lack of funds keep you from making more! Instead, start saving slowly and turn that into killer…

Read more »

gas station, car, and 24-hour store
Energy Stocks

2 Incredibly Cheap Canadian Energy Stocks to Buy Now

Given their discounted stock prices and healthy growth prospects, these two energy companies could deliver superior returns over the next…

Read more »

Volatile market, stock volatility
Dividend Stocks

Set and Forget: 2 Dirt Cheap Stocks to Stash in a TFSA for 15 Years

These discounted Canadian stocks offer high growth potential, making them a compelling investment for your TFSA.

Read more »

stock market
Tech Stocks

Bull Market Buys: The 1 Magnificent 7 Tech Stock You Need

Down 15% from all-time highs, Alphabet is a Magnificent 7 stock that trades at a 25% discount to consensus price…

Read more »