Have ASX retailers past peak pain from Amazon disruption?

There might finally be some good news for traditional retailers as they may have overcome the worst of the digital disruption.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There might finally be some good news for traditional retailers as they may have overcome the worst of the digital disruption.

This disruption is personified by Amazon as the US online shopping titan landed on our shores two years ago.

While some brick and mortar retailers have found ways to grow, many in the sector are hurting. It isn't only the online revolution that's causing pain. Retailers are also grappling with weak wages growth, jittery consumers, the bushfires and the potential outbreak of a new SARS-like virus!

Click or collapse

It's little surprise that a number of high profit retailers have collapsed in recent times, like Bardot and Jeans West, while others like Super Retail Group Ltd (ASX: SUL) have issued profit warnings.

If there's a silver lining, it's that the structural challenge (that being online competition) is becoming less of a drag on profits. That's the assessment by UBS and reported in the Australian Financial Review.

"Online retail sales in Australia have grown at a 14% CAGR for the past 3yrs, and now make up ~9% of retail sales," said UBS.

"The rate of online penetration growth has, however, slowed since peaking in Feb-19."

Slowing online sales

The findings are backed by the broker's latest survey of 1,016 consumers in Australia. UBS concluded that while online penetration will continue to grow, the growth will slow to around 12% by FY24.

It also believes that local retailers are well placed to recapture market share from online rivals and use their physical store networks as a differentiator.

Those with a store front will give consumers a chance to try the products before purchase and to allow in-store pick-up as delivery fees and time are big bugbears.

Are retail stocks looking expensive?

The news bodes well for ASX retailers like Wesfarmers Ltd (ASX: WES) and Harvey Norman Holdings Limited (ASX: HVN).

But the good news may already be in the share prices of several retail stocks. The broker noted that the price-earnings ratios for several have re-rated around 50% while earnings per share forecasts have been cut by 2% over the past year.

Stocks looking like bargains

"We believe this, in part, reflects easing concerns around online (margin, share) with multiples broadly fair relative to growth profiles," said UBS.

"We continue to favour retailers with attractive valuations, offshore growth angle, improving ROIC [return on invested capital] and scope for store/share growth."

Based on those measures, the broker is urging investors to buy Treasury Wine Estates Ltd (ASX: TWE), Flight Centre Travel Group Ltd (ASX: FLT), Myer Holdings Ltd (ASX: MYR), A2 Milk Company Ltd (ASX: A2M) and Premier Investments Limited (ASX: PMV).

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited, Premier Investments Limited, and Treasury Wine Estates Limited. The Motley Fool Australia owns shares of A2 Milk, Super Retail Group Limited, and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Retail Shares

Two happy woman looking at a tablet.
Retail Shares

2 ASX retail shares that look like Black Friday bargain buys

These stocks look like appealing opportunities.

Read more »

A woman wearing jewellery shrugs
Retail Shares

Lovisa share price slides as sales growth fails to impress

ASX 200 investors are bidding down Lovisa shares on Friday. But why?

Read more »

Man with diving gear on in a bathtub.
Retail Shares

Own Wesfarmers shares? Here's why Bunnings is in hot water this week

Wesfarmers is getting some unwanted attention from its Bunnings operations.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Retail Shares

Up 90%, this ASX 200 retail stock's CEO just sold $500,000 worth

What could this mean?

Read more »

View of a mine site.
Retail Shares

Why buying Wesfarmers shares could provide unique lithium exposure

In the last 12 months, the stock has rallied more than 28%.

Read more »

Photo of two women shopping.
Retail Shares

Why one leading fund manager thinks this fallen ASX All Ords stock is a turnaround buy

This is a bargain stock, according to a leading fundie.

Read more »

a woman wearing fashionable clothes and jewellery checks her phone with a satisfied smile on her face in a luxurous home setting.
Retail Shares

Guess which ASX 200 stock just extended its $580 million buyback

Could this draw investor attention to the stock?

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Retail Shares

Own Wesfarmers shares? Here's why Bunnings' monster profits are raising eyebrows

Bunnings is the jewel in Wesfarmers’ crown. Some people are questioning whether it should sparkle as much as it does.

Read more »