Rumours of retail’s demise

For many years we have heard that global giants were poised to decimate the Australian retail landscape, that Amazon’s introduction to the country would spell doom for those Australian businesses still foolish enough to sell consumer goods.

And yet today, after the greatest underlying hit to the Australian economy of the past decade, many Australian retailers sit at or near their all-time highest share prices.

It could be argued that overseas retailers were hampered to a greater degree by the coronavirus, making it difficult for inventory to be shipped to Australian shores. However, local retailers faced similar issues with their own supply chains, although this is expected to start to shift this year.

This lack of incoming product has led to a dearth of sales and discounting, which is to keep prices and margins high, leading to more attractive revenue and profitability numbers.

An online shift

A big driver of the success of these Australian retailers has been their growth in online sales. In their half-year numbers released on the 18th of January, JB Hi-Fi (JBH) reported that online sales rose by 161.7% to $678.7 million, accounting for a fair proportion of JB’s overall sales growth. Similarly, Premier Investments (PMV), which manages several well-known retail brands, recorded online sales growth of 60 percent for the half, taking the online sales contribution from 13.4 to 20.4% of their total sales.

While a major pandemic event is obviously an influencing factor in the big spike in online sales, it was always theory crafted by investors that Australian retailers would be unable to compete with international giants in the online space. The strong growth in online sales seen at JBH, PMV and many others (including Super Retail and Adairs) suggests that they can compete in the online retail landscape.

Pandemic savings

An online shopping bonanza does not tell the full story, however. The pandemic, working from home, and generous fiscal stimulus measures led to Australian households saving heavily during 2020. Indeed, between February and October, Australian households increased their cash deposits at Australian banks by $100 billion.

This large amount of additional savings could now be flowing into retail markets and helping to prop up retail sales growth; especially as Australia moves out of the COVID-19 period as households become more willing to spend.

February rapidly approaching

The next major company earnings reporting season for Australia will be an interesting one. It should hold a return to dividends for our market, which has traditionally favoured this method of returning cash to investors. While everyone is expecting big dividends from the miners, do not be surprised to see retail stocks as another earnings and dividends bright spot.