The 2 retail shares best placed to withstand the Amazon threat

There has been a de-rating in the retail sector with the looming threat of Amazon's entry into the Australian market. But this represents a buying opportunity as some retailers are well placed to stand up against the online titan.

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Last week was a brutal week for retailers with most underperforming the broader market. No doubt the impending arrival of online retail giant Amazon to our shores is weighing heavily on sentiment.

The question though is whether beaten down retail stocks are oversold?

For instance, shares in furniture and electrical retailer Harvey Norman Holdings Limited (ASX: HVN) finished the week more than 5% lower, as department store Myer Holdings Ltd (ASX: MYR) sunk 3.6% and electronics chain JB Hi-Fi Limited (ASX: JBH) shed nearly 2%.

In contrast, the S&P/ASX 200 (Index:^AXJO)(ASX:XJO) closed the week down 1%. The year-to-date performance of our retailers is even worse, but that is prompting some experts to think that investors are over reacting to the Amazon disruption.

I think investors can't afford to be complacent about the threat, but indiscriminately selling the sector is also not a smart move as Amazon, no matter how great it is, cannot be everything to everyone.

It's impossible for one business model to fit perfectly into every market segment.

In some respects, Amazon's US$13.7 billion takeover bid for Whole Foods Market in the US is an admission to this point. Amazon needs bricks and mortar if it wants to properly service parts of the retail industry.

Those with a longer memory will also remember the disruptive threat posed by Dell. However, the online computer giant realised that selling through the web has its limitations as well, and that is one reason why you can purchase Dell computers at JB Hi-Fi and a number of other traditional retailers.

Our retailers also have plenty of time to prepare for the arrival of Amazon and they will respond because they have seen the cost of inaction in the media sector. They do not want to be the Fairfax Media Limited (ASX: FXJ) of the industry. It was caught with its pants down as it arrogantly dismissed the online threat in the early days. To be fair, Fairfax wasn't the only one, but that's another story.

For instance, Myer is already trialing its clearance shop at its Frankston store. It plans to roll this out nationally and this move is in direct response to Amazon's entry into the market.

Investors also shouldn't forget that there will be some retailers that will be relatively unaffected by Amazon. These retailers tend to own strong brands that are highly rated by their consumers, sell non-commoditised or premium products, and service a non-price sensitive segment.

One such example is four-wheel drive accessories company ARB Corporation Limited (ASX: ARB). Four wheel drive enthusiasts hold ARB products in very high regard. They buy the best and do not make purchase decisions based on price.

Another retailer I think will escape the worse of the Amazon onslaught is fashion and stationery retailer Premier Investments Limited (ASX: PMV).

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Motley Fool contributor Brendon Lau has no position in any stocks mentioned. The Motley Fool Australia owns shares of Premier Investments Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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