Blog: Hey Amazon, British Retailers Are Pretty Cheap – Bloomberg

Photographer: Chris Ratcliffe/Bloomberg

Hello, Amazon? Are you there?

If ever there was a moment for an international retailing behemoth to pick up a British store chain, this is it.

While Christmas trading didn’t turn out to be the bloodbath that many — including myself — had feared, valuations remain in the doldrums.

The FTSE 350 General Retailers Index has bounced since the end of December, as the big store groups avoided nasty profit warnings. But even so, it is down about 20 percent from its 2018 high. A weaker pound is also helpful.

Shop Soiled

The FTSE 350 Retailers’ Index is close to its lowest level for about five years

Within this, there are some individual horror stories. A prime example is Asos Plc, the purveyor of playsuits to millennial shoppers, which delivered a severe earnings downgrade in December.

Amazon.com Inc. has long struggled to crack fashion, and snapping up Asos would solve this problem in one fell swoop. And given that its enterprise value has dropped from more than 6 billion pounds ($7.8 billion) in March 2018 to just 2.5 billion pounds, the company has now become as affordable as its clothes. Amazon’s market capitalization of about $800 billion makes buying Asos the equivalent of popping a cheap satin mini-skirt in its shopping basket — even including a takeover premium.

Then there’s grocery. Amazon’s $13.6 billion purchase of Whole Foods only gave it a tiny U.K. presence. Bulking up in Britain could be possible if the internet giant looked to emulate that 2017 deal by bolstering its physical presence and its online grocery business, Amazon Fresh.

Although the listed supermarkets’ valuations have also recovered recently, they are still lower than six months ago.

Buying Tesco Plc, Britain’s biggest supermarket, would transform Amazon’s grocery business, giving it massive scale and a food supply chain capable of handling fresh produce across the U.K.

The smaller players could also be suitable. Amazon already sells Wm Morrison Supermarkets Plc products, so a deal would be a matter of expanding that link. Meanwhile, if J Sainsbury Plc’s 7 billion pound purchase of Walmart Inc.’s Asda collapses it would be vulnerable — and appealing, given that it has both a food business and the non-food Argos arm.

There are question marks. With Tesco, Amazon would get around 3,000 U.K. stores serving a broad range of customers, not just those affluent consumers who might subscribe to Amazon Prime. Buying either it or Sainsbury would also spark competition concerns. Although Amazon is still small in food, both potential targets have big non-food businesses that regulators would need to scrutinize.