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6 Retailers That Can Withstand the Amazon.com, Inc Onslaught

By Joseph Gacinga - Mar 27, 2014 at 2:55AM

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There are several retailers that seem to have credible defenses against Amazon.These retailers are likely to survive the Amazon onslaught with minimal damage to their topline growth.

Amazon.com ( AMZN -0.00% ) has forever changed the retail sector and the way we shop. Many physical stores have felt the impact of Amazon's disruptive pricing habits, and as a result have seen their revenues fall off a cliff. Retailers such as Best Buy, Staples, Barnes & Noble, and Sears are some of the unfortunate victims. Meanwhile, Amazon continues growing its topline at the expense of other retailers.

Source: Census Bureau

But there are several retailers that seem to have credible defenses against Amazon. Mark Miller, a William Blair analyst, together with his colleagues, conducted some studies last year on the retailers that are least likely to lose market share to Amazon.  From their study, TJX ( TJX 0.30% ), Walgreen ( WBA 0.56% ) and Cabela's were found to be the most Amazon-resistant retailers.

In yet another similar study by Morningstar, Advanced Auto Parts ( AAP -0.39% ), PetSmart, and Ross Stores ( ROST 0.03% ) were found to be the least vulnerable to Amazon.

Let's look at the reasons why these six stores are not likely to be affected by the Amazon onslaught.

TJX
TJX is an off-price retailer, whose goods sport a 19% overlap with Amazon. That's much lower than the average retailer with a 46% overlap. TJX operates as 3,000 stores under the T.J. Maxx, HomeGoods, and Marshalls brands, as well as other names in Europe and Canada. TJX's popularity with consumers stems from its ability to sell clothing at dirt cheap prices -- about 20% to 60% cheaper than specialty retailers and department stores.

TJX is able to cut prices to the bone simply because it has perfected the art of cutting great deals with desperate clothing makers and apparel stores. The company's 800 buyers scour the markets for order cancellations, manufacturer overruns, and closeouts. They then buy this merchandise for a song. It does not advertise and it only recently launched a website. 

Walgreen
Walgreen is the country's largest drugstore chain. It has formed large drug distribution partnerships with companies, such as AmerisourceBergen, and overseas firms, such as Alliance Boots. This gives it a huge international reach. Walgreen filled 213 million prescriptions in the first quarter alone, a record for the company.

Advanced Auto Parts
Advance Auto Part stores offer unique services to their customers that would be very hard to duplicate online. It would be difficult for online retailers such as Amazon to match its retail convenience and customer service needs.

PetSmart
The pet food business has ample room for growth in the e-commerce space, considering that online sales account for less than 3% of overall sales. But selling pet food online is tough.

Pet foods are normally quite cheap, but can be bulky when ordered in large quantities. This can substantially increase the cost of shipping and deter online purchases. Pet Food sells exclusive merchandise that is not normally found in the average pet food shop at marked up prices. PetSmart also offers services like pet grooming and lodging.

Ross Stores
Ross Stores is an off-price apparel seller of name-brand and designer goods. Its prices are often marked down well-below those of the average retailer. It constantly changes its merchandise mix, so that customers can always expect to find something new and exciting.

This makes for the "treasure hunt" experience, that customers love. Ross Stores has strong relationships with thousands of clothing vendors. The company allows local store managers to stock merchandise according to the local consumers' tastes and preferences.

Foolish bottom line
Most retailers face some competitive risk from Amazon, either based on a huge degree of overlap between their goods and Amazon or their prices are too high compared to Amazon. There are, however, a few retailers whose operations face little threat from Amazon. These companies are likely to see their toplines continue to grow with little disruption from the Internet giant.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,523.16 (-0.00%) $0.13
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
WBA
$48.50 (0.56%) $0.27
Ross Stores, Inc. Stock Quote
Ross Stores, Inc.
ROST
$113.13 (0.03%) $0.03
The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
TJX
$74.34 (0.30%) $0.22
Advance Auto Parts, Inc. Stock Quote
Advance Auto Parts, Inc.
AAP
$234.03 (-0.39%) $0.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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