The Westfield Corp Ltd (ASX: WFD) and Scentre Group Ltd (ASX: SCG) share prices have been pummelled over the year, falling 28% and 20% respectively in that time.
This is for a couple of reasons, although Amazon seems to be the primary one. All the media reports about Amazon Prime (in the US) and its expansion into groceries and ready-to-cook meals have got investors worried, and pundits saying that 'malls are dying'.
Certainly, in some areas of the US that appears to be an accurate statement, especially with the transition to online retailing. These fears however may prove less relevant to Scentre Group in Australia – at least until recently, when the media increasingly began reporting franchisees placing their businesses in administration in response to sharply rising rents.
Knowing what is true
It is difficult to know which is the 'real' situation. Malls like Westfield and Scentre are the incumbents, with a sort-of monopoly/network effect that is now being actively challenged by online retail. Online retailers are also working (with mixed success) to break down one of the last remaining barriers to purchase – the 'touch' factor where you can look and try before you buy.
So, the monopolistic incumbents are being challenged and disrupted by new technology, no doubt. However, the opposite side of this equation is that shopping centres offer the experience and the novelty, plus the 'getting out of the house' factor that you don't get when you're shopping online.
The people factor of retailing is being greatly overlooked by those who are bearish about Amazon. People love to go to places where there are other people, and having more people attracts even more people. If you've ever worked in retail you've seen this phenomenon first hand – your counter/store will be empty for 30mins and then you'll get 6 customers at once instead of 1 at a time.
How does this help us invest?
With the kind of dilemma seen above, investors must choose how they respond to the uncertainty. The best way to approach uncertainty is either to choose not to invest, or demand a much higher return – i.e., demanding a lower price and higher dividend yield before investing.
According to their most recent annual reports, Scentre Group has A$3.67 in Net Tangible Assets, while Westfield has US$4.60 (A$5.81). Both companies share prices are above their net tangible assets, which is a problem if you think that either rents are too high or competition will eat into shopping centre retailers. Paying above asset prices can result in problems if rents start to fall, because property values will fall.
There's no point buying either Westfield or Scentre Group at today's prices if you think that Amazon is going to eat their lunch.
