The retail sector is one of the cheaper sectors on the ASX. With recognisable names such as Harvey Norman Holdings Limited (ASX: HVN), Woolworths Limited (ASX: WOW) and JB Hi-Fi Limited (ASX: JBH), it's easy to think of some big names to invest in.
However, the future doesn't look too rosy for bricks-and-mortar shops when you consider the rise of internet shopping, particularly the impending arrival of Amazon.
There are a few retail shares that I think could keep doing well. Here's why I think RCG Corporation Ltd (ASX: RCG), owner of The Athlete's Foot and distributor of brands including Vans, is one of the best retail stocks:
Shoes are different
Customers measure most shoes by how comfortable they are to wear, meaning a lot of people want to try them on before deciding to buy a pair. This gives shoe retailers an advantage over retailers of products such as electronics.
Impressive network and profit growth
RCG grew its network of stores to 319 during FY16 and it's predicted to have 417 stores by the end of FY17.
In FY16 it grew its underlying net profit after tax by 141.6%, which is great for any business, particularly a bricks-and-mortar one.
Growing number of brands
RCG Corporation is known for The Athlete's Foot, but thanks to its expanding presence it also is responsible for CAT, Merrell, Vans, Skechers, K-Swiss and more in Australia.
Owning more brands obviously increases sales and also mitigates the risk if one brand or style of shoe falls out of fashion.
Risks
There will always be risks from international retailers such as Foot Locker and internet shopping could still be disruptive. As long as RCG can keep growing its own sales and profits it doesn't necessarily need a growing market share.
Time to buy?
RCG is currently trading at 17.8x FY17's estimated earnings with a grossed up dividend yield of 5.18%. This isn't a cheap valuation, but I think it is worth the price for this growing business.
If a shoe retailer isn't your preferred type of investment, perhaps our number one pick for 2017 could get your portfolio up and running.
