Retail Stocks: Share prices are down, down but their death is greatly exaggerated


David Jones Limited (ASX: DJS) share price might be down 44% in the last 12 months, but Mike King believes the death of it, and other bricks and mortar retailers, has been greatly exaggerated.

Many commentators, analysts and journalists (myself included at times) have written mountains of articles about the death of retailing in the last few months. Back in July last year Motley Fool Investment Analyst Dean Morel wrote a timely article titled “Your retail stocks are dying

Quarterly sales results and profit results have mostly been down, and share prices for most retailers have fallen dramatically in the last twelve months, as you can see from the table below.

Company

Current price

12 month share price change

David Jones Limited

$2.51

Down 44%

Myer Holdings Limited (ASX: MYR)

$2.05

Down 37%

Billabong International Limited (ASX: BBG)

$1.85

Down 77%

Premier Investments Limited (ASX: PMV)

$4.95

Down 18%

JB Hi-Fi Limited (ASX: JBH)

$12.02

Down 38%

Harvey Norman Holdings Limited (ASX: HVN)

$2.05

Down 31%

Speciality Fashion Group Ltd (ASX: SFH)

$0.56

Down 56%

Pacific Brands Limited (ASX: PBG)

$0.69

Down 34%

For some reason, maybe it’s because I’m the eternal optimist, but I can’t help but think how the current retail malaise is a similar situation to the dot com era of the early 2000’s, and many of the companies above will strike back.

You may or may not remember that many internet stocks went sky high and people were crowing then that “bricks and mortar” was dead, and online e-tailing was the new paradigm.

Many internet stocks selling not much of anything soon reached stratospheric heights, while ordinary “bricks and mortar” companies languished, almost embarrassed to confess that they owned physical buildings from which consumers could wander in and purchase their products.

While there have been high profile deaths of “bricks and mortar” companies – Angus & Robertson and  Borders to name two – many more have survived, new retailers have been formed, and others have adapted and taken advantage of their online presence, but still kept their “bricks and mortar” stores.

Why are retailers down, down, prices are down?

Several reasons. Chief amongst them is consumers are time poor and money conscious. It’s faster and cheaper to shop online.

Competing pressures for the consumer’s dollar from higher energy, petrol and everyday living expenses don’t help.

Another major reason is the strength of the Australian dollar, which makes overseas purchases (which also don’t attract GST if they are under $1000) much cheaper.

What can retailers do?

As I see it, retailers today will need to adapt quickly. If your stores sell exactly the same commoditised products as consumers can get online, then you face an up-hill battle. JB Hi-Fi is currently in this position, as my colleague Scott Phillips recently outlined in this article.

Retailers need to make the retail shop an “experience”, by providing great customer service, including no questions asked refunds, fast repairs/exchanges and other non-monetary services that will encourage customers to walk into the shop and buy.

You only have to look at the success of Apple (NASDAQ:AAPL) stores. Retailers – there’s your model.

Offer exclusive, non-commoditised products that can’t be obtained online, or offer products that can be obtained in-store at a cheaper price.

Follow the example of Super Retail Group Limited (ASX: SUL) which offers consumers clubs where members get discounted prices. This allows Super Retail to gain more intelligence about their customers and provide more direct sales targeting. Amazon (NASDAQ:AMZN) do this brilliantly, by sending customers emails of products they might like based on previous purchases.

As an example, I used to do my weekly grocery shopping online through ShopFast. Prices were as cheap as Woolworths Limited (ASX: WOW) and Coles (now part of Wesfarmers Limited ASX: WES), delivery hours were very convenient, and delivery costs cheap. That was until Woolworths bought them out, put the prices up above in-store prices and restricted delivery times. I’ve now switched back to doing my grocery shopping with a real trolley (wonky wheels and all).

One of the things I like about walking into JB Hi-Fi is that there are loads of knowledgeable salespeople who can discuss options with me and I invariably get a discount off the marked price just by talking to one of the salespeople. (There’s nothing like feeling you’ve got something for a bargain.)

Online, there’s no-one to negotiate with, so the price marked is the price I have to pay.

Retailers may also need to accept lower margins, but make up for that by selling higher volumes.

Predictions – oh oh

I’m going to make a prediction here that I’m sure I’ll be castigated for, if I get it wrong. Retailers will change and come back stronger than ever. I don’t see the current situation as a permanent death-slide for retail, but as a revolution that was needed.

How the retail landscape will look in a few years, I have no idea, but I imagine that I’ll still be able to walk into “bricks and mortar” stores, talk to a salesperson, buy my product in-store and feel good about it.

The death of retail has been great exaggerated.

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Motley Fool contributor Mike King owns shares in Woolworths. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.

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