Who is selling and why?, page-32

Amazon is really a scale/logistics play - they will simply undercut on price bricks and mortar stores that have inefficient supply chains and/or lack scale, and/or have no online presence.

GXL has spent $23m (through the capital account) since FY14 building its own online platform and logistics/inventory management system, and in addition to that spent $7.8m in FY16 on internalizing (i.e. buying) its distribution centre. This large cumulative investment is why GXL is becoming more efficient (e.g. inventory per store is trending down, stock turn and availability is trending up), and why we are seeing things like retail gross margin trending up despite them selling a greater portion of lower margin items (e.g. pet food). This investment is also what has enabled GXL to build a profitable online business, roll out click-and-collect nationally, and build a customer loyalty program.

I feel pretty comfortable that GXL has the scale and supply chain, as a result of this >$30m cumulative investment over the last 3 years, to compete with Amazon when it eventually arrives. I also think that GXL's supply chain investment is nearing its completion given click-and-collect was recently rolled out, so i expect underlying capex to come down over the near term leading to further improved cash flow generation.