While many retailers have been complaining about their revenues being eroded by increased online competition, Goodman Group (ASX: GMG) has emerged as a winner. Amid a sea of ASX companies downgrading earnings, the group has increased profit guidance for the full year — as its logistics unit benefits from the shipping and processing needed to support a surge in online shopping both in Australia and around the world.
Goodman now expects its second half earnings per share to reach 16.2 cents. This results in an updated full year earnings guidance of 32.4 cents per share, slightly above the previous guidance of 32.3 cents.
Winning the brave new world of retail?
Goodman is Australia's largest industrial real estate trust, with a market cap of $8.8 billion. It has significant global operations with investments in logistics facilities and business parks that span across Asia, Europe and the Americas.
Online shopping has been surging across the world as an increasing number of consumers are attracted by the lower cost and wider selection that online can offer. The trend has left traditional retailers struggling to compete. Shopping centre operators Westfield Group (ASX: WDC) have also been affected, with online shopping seen as one of the contributors to stagnant retail growth.
Investors wanting to take part in the online shopping bonanza have often looked abroad to the e-commerce retailers themselves such as Amazon.com (NASDAQ: AMZN). Unfortunately, because so many other investors have had the same idea, you often need to pay a high price to invest in these players.
But the success of Goodman's logistics division highlights another approach to play this trend. Online retailing increases the need for transportation in general, and companies operating in this field are often overlooked as a way to invest in the move to online shopping.
Goodman in a prime position
The type of logistics space that Goodman offers is an even greater beneficiary of the trend than general transport providers. This is because international e-commerce shipments tend to be small orders made by individual customers rather than the large homogenous import shipments made by a traditional retailer. Smaller orders aren't enough to fill a whole container, so must be packed in together with other shopper's orders and then unpacked at the destination before being re-packed into trucks and rail for distribution to the end customers. All of that unpacking and re-packing takes up a lot of logistics-processing space – which is exactly what Goodman is in the business of providing.
In other words, Goodman is in prime position to benefit from the increasing trend of online shopping.
Today, online shopping makes up single digit percentages of total retail spending in most major markets. But the trend is likely to grow and accelerate in the years to come. In a recent statement, Goodman group CEO Greg Goodman outlined the enviable position the company finds itself in: "Goodman's development business is benefitting from the ongoing undersupply of prime logistics space and a number of structural changes taking place globally, including the rapid growth in e-commerce".
The best way for investors to play this growing trend
Goodman's success proves that no cloud is without a silver lining. While many traditional retailers find themselves battling against the internet, there are a few sectors that stand to gain. Investors would be wise to think outside the box.
The obvious option for those wanting to take part in the online retail trend is to invest directly in a major e-commerce player. However, because of the demand from other investors these are not always available at compelling valuations.
A smarter approach may be to look at logistics companies, and those providing logistics warehousing space. These companies stand to benefit significantly from the long-term online retail trend – and may be missed by other investors that are rushing to the internet stocks themselves.
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Motley Fool contributor Matt Joass does not own shares in any of the companies mentioned in this article.
