For ASX-listed retailers, the accelerated shift online will create winners and losers
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COVID-19 social distancing rules have accelerated sales through online retail channels in Australia, and UBS analysts say some of that transition will be permanent.
In its latest report — part of a series on the future of retail — UBS said online shopping patterns would change in four key ways:
1. Increased online penetration for non-food retailers, which will see online sales rise to 17 per cent of the total sales mix by 2024 (from around 11 per cent now);
2. Store consolidation, driven by unit metrics where every 1 per cent increase in non-food online sales will give rise to a 2 per cent fall in store sales;
3. Clear winners & losers, where brands with existing networks and intellectual property around non-store sales are poised to benefit;
4. Changing investment patterns, with a shift away from in-store investments to supply chains and fulfilment centres.
UBS said the new paradigm might also accelerate the shift of physical store closures among specialty shops and department outlets.
If the online composition of overall sales meets UBS’ forecast of 17 per cent, the numbers imply that around 20 per cent of the existing store network in Australia would be expected to close over the next five years.
The analysts then put together a four-step framework to assess which ASX companies are best placed to capitalise from the move online.
Profitability is the first metric, with online sales still “margin dilutive” for most players, although improving. They also cited data analysis capability, supply chain scalability and lease flexibility (which retailers have the shortest lease terms).
Based on those categories, they picked four winners from a cohort of eight stocks: small-cap Adairs (ASX:ADH), a specialist online retailer of linens and homewares, along with Kogan.com (ASX:KGN), Premier Investments (ASX:PMV) and JB Hi-Fi (ASX:JBH).
The analysts added that Adairs and Premier Investments were the two standouts in terms of category one — online profitability — with both companies flagging online sales were accretive to margins.
Looking ahead, UBS said data collected from a survey of more than 1,000 consumers in the first half of April suggested “a significant increase in expected online purchasing over the next 12 months”.
By brand, customers were particularly positive on US heavyweight Amazon, which entered the Australian market back in 2017.