As investors we are conditioned to look for the next opportunity to grow our wealth, and often forego a far more important principle: do not lose capital.
New external competitors are one of the main reasons that business earnings suffer badly. For an everyday example, just look at the havoc that German grocer Aldi has created in a previously comfortable supermarket duopoly.
In a similar vein, these three companies could be exposed to foreign competitors setting up on Australian shores. Is your portfolio vulnerable?
Myer Holdings Ltd (ASX: MYR) is a well known poor share market performer, but the share price has been in a nice uptrend lately, gaining about 20% from its January lows on the back of a positive trading update.
However, Myer is arguably the business most exposed to global competitors on this list. The concept of a department store is now arguably outdated, with mega-malls and online shopping largely removing the need for a store that sells appliances, clothing, greeting cards and books all under one roof.
Myer faces intense competition from foreign players with aggressive store rollout strategies in almost every one of its high margin categories with make up (Sephora) and fashion (H&M, Uniqlo, Zara) being just a few examples.
In addition, it struggles with a mid-market position that does not have prices low enough to appeal to value shoppers, but also does not have resonance with premium higher margin customers like the more upmarket David Jones.
Super Retail Group Ltd (ASX: SUL) could be the latest retailer to fall victim to the entry of a savvy European retailer with an obsessive focus on price.
Super Retail is home to a range of brands including BCF and Goldcross Cycles, but two of the largest contributors to earnings are undoubtedly the Amart Sports and Rebel Sport brands.
However, the Australian market for sporting goods is set to be disrupted by French behemoth Decathlon, who some are already calling "the Aldi of the sporting goods market". Decathlon looks set to borrow from the Ikea playbook and operate enormous sites and house a comprehensive range of goods covering over 70 sports.
Decathlon already operates over 1,000 stores globally, so has access to a wide range of low-cost, efficient international suppliers. It also has purchasing power far in excess of Super Retail Group, meaning it should be able to offer consumers lower prices.
JB Hi-Fi Limited (ASX: JBH) has for a long time been the cheap and cheerful category killer in the electronics and home entertainment market, but could be exposed to earnings pressure due to an unexpected competitor: Netflix.
Netflix provides video streaming on demand via the internet to subscribers for prices as low as $12 per month. In addition to new release shows, Netflix buys the back catalogue of many "TV favourites" to add to its library, along with an ever-widening range of movies.
Walk into any JB Hi-Fi store and you will see that a substantial portion of floor space is still reserved for movie DVDs, Blu-Rays and TV show Box Sets. However, the economics of paying $15 for a single DVD don't make much sense, when you can access thousands of hours of the same or similar content for less than that per month.
In addition, these low value, high turnover products are currently important drivers of "foot traffic" to JB Hi-Fi stores, and any drop off in this could have serious negative effects on overall sales.
With hundreds of thousands of Australians already subscribers of Netflix, it will be interesting to see what effect the streaming revolution will have on sales at JB Hi-Fi.
