Own Retail Stocks? Consider This!

Filed in archive Investing on January 14, 2006

If your investment strategy includes retail as part of your portfolio, you will need to start considering seriously the affects the comparison shopping websites will have upon prices.

For example retailstockblog.com recently reported a new comparison shopping site called:HealthPricerThey had this to say, "This is an interesting phenomenon: comparison shopping sites becoming vertically specialized. We?ve already seen this in large categories like travel, but vitamins?"

One implication: I?ve commented before that comparison shopping sites put downward pressure on retail prices. If so, this trend is incrementally negative for privately-held retailers GNC (the largest traditional retailer of vitamins) and Vitamin Shoppe. It?s also incrementally negative for Drugstore.com (DSCM), which has moved into vitamins, diet supplements and other health-related products.

In fact, if you look at Drugstore.com's home page you'll see the tab for the "Natural Store" in prime position, > reflecting the importance the public places on this."Although HealthPricer itself isn't large enough to impact pricing, the trend towards comparison shopping is clear.

Comparison shopping sites should rapidly gain traffic as the leaders have been purchased by larger companies - Shopping.com by eBay (EBAY), Shopzilla by Scripps (SSP), and PriceGrabber by Experian. And the generalized search engines will likely incorporate this data rapidly. One of the keys to note here is that, although smaller at this time, HealthPricer does a superior job than Shopping.com in producing search results.

What's the advantage of HealthPricer over a broader comparison shopping site like Shopping.com? We ran a typical search for a popular vitamin supplement product: Solgar's B-Complex 100. On Shopping.com, you have to type that product into the search box, and only one store's prices appear (not much of a comparison?).

HealthPricer (1) allows you to browse by brand, (2) provides a product page that includes a detailed description, health warnings, and more info, and (3) provides six stores? pricing on a variety of bottle sizes. We?re impressed.?

The bottom line for the investor is that we must keep a close watch on the pressures these new technologies have upon a company's bottom line. If the consumer is able to immediately compare prices on any variety of products, then no company will be immune to the pricing pressures. Make sure if you?re in retail stocks that these pressures aren?t going to affect your bottom line!