Earlier this year Marc Andreessen, Netscape's founder and a successful tech investor, stated, "the bricks and mortar retail guys are going to go out of business and ecommerce will become the place everyone buys" and "retail stores are a fundamentally implausible economic structure if there's a viable alternative".
Wow! These are full on comments and for sure there are major hurdles with physical stores, especially excessive leasing costs. But can virtual shopping really replace the experience of tangible products, social activity and the ability to easily compare and choose? Depends on the product, I suppose.
It can equally be argued that online technology helps provide an extra dimension to physical stores and vice versa. We have seen this with the recent physical presence of Topshop and Zara, not to mention the impending arrival of H&M and Uniqlo. These brands are more of an endorsement of bricks and mortar than a threat, and are mainly focused on a particular segment (fast fashion) of the market.
Of ASX-listed stocks, which are best placed to benefit from the changes in retail?
Department stores David Jones (ASX: DJS) and Myer (ASX: MYR) have sufficient financial capacity and scale to put vigorous efforts into effectively integrating the online and offline experience (multi-channelling). In my view, David Jones beats Myer here as it has half the number of physical stores to support and stronger leverage to the benefits of a successful multi-channel strategy..
Oroton (ASX: ORL) is interesting as it was a relatively early adapter of digital channels and now derives over 10% of sales revenues online. Oroton is currently in the process of establishing a dedicated Chinese site and a major revamp of the home site. Unfortunately, I recommended Oroton as a good buy some weeks back only to see the price fall another 15%. Sorry to anyone who might have taken notice! I still believe the market has underrated the joint venture with Brooks Brothers and the prospects of further developments.
RCG Corporation (ASX: RCG) is also well placed and is growing strongly in the footwear segment. RCG holds an exclusive long-term licence (fee-free, 249-year term) for Athlete's Foot and distribution rights for Merrell, Sperry Top-Sider, Caterpillar, Cushe and Chaco. RCG blends an active online presence with physical stores particularly well.
Premier Investments (ASX: PMV) has a fully owned portfolio of brands and is the one most affected by the arrival of new international entrants. However two rapidly rising stars in the portfolio are Peter Alexander and Smiggle and these are the ones most likely to provide overall growth in the next few years. Premier Investments is digital savvy and should benefit from increasing consumer awareness.
Foolish takeaway
In my view, retail is getting set for a financial revival over the next few years. The new entrants are likely to stimulate rather than constrict opportunities. Retailers adept at balancing the digital with the physical will benefit from lower overall costs per sale and an increase in productivity as marketing becomes better directed.
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Motley Fool contributor Peter Andersen owns shares in David Jones, Oroton and Premier Investments
