Retailing is becoming an ever more difficult industry to succeed in. Overseas competition, online competition, and low consumer confidence are creating a massive headache for Australia's traditional retailers… not all will survive.
Hard Times
The majority of Australia's listed retailers have warned of difficult times and slowing growth or outright falling sales in the competitive market. Three of the hardest hit have been Pacific Brands Limited (ASX: PBG), Myer Holdings Ltd (ASX: MYR), and Billabong International Limited (ASX: BBG). These companies have one main similarity – they have been left behind as their primary audience has been able to find cheaper alternatives either online or at competing stores.
Winners
The companies that are outperforming are those that are doing something different or making sensible acquisitions. An interesting observation is that companies like the Reject Shop Ltd (ASX: TRS), which has little competition from online retailers due having a lower average customer basket size, could outperform versus companies like Myer that retail a number of relatively expensive brands they don't control.
Similarly, companies like Kathmandu Holdings Ltd (ASX: KMD), OrotonGroup Limited (ASX: ORL) and even food retailers like Retail Food Group Limited (ASX: RFG) control their supply chain and point of sale so that a loyal customer base can be established and discounting can be limited.
Time to Invest?
The fourth quarter of the calendar year, or Christmas, is typically the strongest and most profitable quarter for most Australian retailers. The outlook statements of Australia's retailers have consistently mentioned that full-year profit guidance is dependent on the success or otherwise of the Christmas period.
While Christmas spending is predicted to be higher than previous years, I would prefer to search for a surer bet over the long term. Companies with long-term competitive advantages, like some that operate sustainable and dominant online services, can offer much more impressive and reliable growth.
