Amazon Effect' Leads Investors to Sour on Retail -- Update

By Riva Gold and Saabira Chaudhuri Features Dow Jones Newswires

Amazon.com Inc.'s expanding reach is prompting investors to dump shares of retailers far from the U.S.

Continue Reading Below

The Seattle-based company is hastening a global move to online shopping that is plunging many overextended retailers into crisis, forcing some to eliminate physical stores, cut prices or even file for bankruptcy.

While the "Amazon effect" has been most pronounced in the U.S., investor concern overseas has been rising.

"Virtually every retailer needs to assume Amazon is coming for them," said Eddie Perkin, chief equity investment officer at Eaton Vance Investment Managers. "What companies and investors thought were immune categories have turned out not to be immune." Mr. Perkin has been avoiding shares of many brick-and-mortar retailers even as their prices have fallen.

The Stoxx Europe 600 retail sector has shed 3.7% so far in 2017, even as the wider European benchmark has gained 6.9%. Retail was Europe's least popular sector among fund managers surveyed by Bank of America Merrill Lynch in September.

Europe had been partly sheltered from Amazon's impact until recently. In 2015, the Stoxx Europe 600 retail sector had gained 8%, even as the U.S. SPDR S&P Retail ETF fell 9.9%.

Continue Reading Below

U.S. retailers expanded aggressively for years and have recently been forced to reverse course, closing stores at a record pace, whereas European and Australian retailers don't have the same space glut. According to Credit Suisse, U.S. retailers have roughly seven times more retail space than ones in the U.K.

American brands are also more dependent on selling products through department stores than European ones, meaning they have been harder hit by struggles at big chains such as Macy's Inc.

Shoppers globally are increasingly accustomed to buying online, meaning retailers the world over are feeling pressure over their prices, delivery and range of products.

Amazon's international sales increased 16% in the first half of 2017 from a year earlier. The online giant -- which has been opening fulfillment centers and launching its own fashion brands in Europe -- made up one-third of all retail sales growth in the U.K. and Germany last year, according to Morgan Stanley.

"Looking at capital expenditures and distribution centers Amazon is putting down -- that's a real signal of intent," said Jeroen Huysinga, portfolio manager at J.P. Morgan Asset Management. The fund manager has been selectively adding exposure to retail stocks, including Associated British Foods PLC, picking companies it believes can adapt to the changing environment.

International real-estate investment trusts tracking shopping-mall operators have been hit hard in the past 12 months as brick-and-mortar stores come under pressure. France's Klépierre SA and the U.K.'s Intu Properties have fallen 21% and 22%, respectively. Shares of Scentre Group, the owner of Westfield shopping centers across Australia and New Zealand, have fallen 19%.

"I think we're going to see an impact over the next three to five years in Australia that we haven't seen in the past," said Ramiz Chelat, portfolio manager at Vontobel Asset Management, who has shifted out of a number of traditional retailers globally and into companies like Amazon and Alibaba Group Holding Ltd.

Amazon's impact has been sharply felt among retailers who sell laptops and other small consumer electronics, forcing firms like the U.K.'s Dixons Carphone PLC to equip its staff with tablets to show its in-store prices are cheaper than those found online.

A Dixons spokeswoman said price is just one factor, with great service and shopping environments that let staff demo products equally important.I

Shares in Dixons are off 48% this year.

To be sure, some investors see retail's selloff in Europe as an opportunity. Sarah Monaco, investment manager at the Scottish Investment Trust in Edinburgh, said she is holding shares of British retailers Marks & Spencer Group PLC and Tesco PLC, in part because the market reaction to the "Amazon effect" might be overblown.

But many are bracing for seismic shifts ahead.

Amazon has been widening its fashion range, last year adding over 350 new apparel and accessory brands in Europe. About 83% of shoppers in the U.K. and 85% in Germany bought clothes on Amazon in the past year, according to a UBS survey published in February.

Amazon is also hastening a move by grocers in big markets like France and the U.K. to invest in click-and-collect and one-hour home delivery as the company pushes harder into groceries.

Amazon's impact can be felt "pretty much anywhere on the planet," said Mark Phelps, an equities chief at AllianceBernstein Global, who has reduced exposure to retail fashion brands largely as a result of growing online competition. "If you are a retailer and Amazon comes into your area of operation, you will lose sales," he said.

Write to Riva Gold at riva.gold@wsj.com and Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

September 28, 2017 13:05 ET (17:05 GMT)