Clicking up a record

Clicks beating bricks, with consumers shopping up a sales record in July.

Consumers continue to vote with their fingers – and not their feet, or so it seems. Online retailers are the beneficiaries, while traditional ‘bricks-and-mortar’ stores are suffering. But there may be good news around the corner for our traditional retailers.

National Australia Bank’s index of online sales rose 5.8% in July, while annual growth in the index jumped to 25.4%, up from 18.8% in June. The strength of the Australian dollar has seen international sales grow at 29%, faster than domestic sales, which rose 24% compared to the previous year.

The growth is perhaps surprising, given the Federal government started splashing its cash around from the middle of May, as part of its efforts to compensate households for the introduction of the carbon tax. There are two possible explanations. The first is that with government subsidies spent, consumers have then opened their wallets. The other alternative is that consumers have simply decided they’d rather shop online at home rather than head out to the stores. NAB’s chief economist has said that there was a broad pick-up across all online categories, including department stores.

Almost three quarters of online sales go to domestic retailers. That’s probably no consolation to the likes of Harvey Norman Holdings (ASX: HVN) which today reported a 32% fall in full year profits to $172 million.

The fall in Harvey Norman’s profit have been blamed on consumers cutting back their purchases, and a renewed focus on saving and paying off debts.  The closure of  many consumer electronics stores has created a glut of product being sold at never before seen prices.  That has seen the consumer electronics categories face significant price deflation and margin compression. That echoes the comments of TV and electronics retailer JB Hi-Fi Limited (ASX: JBH) earlier this month, which reported a 5% in full year net profit.

The structural changes in the Australian retail landscape has seen several large retailers forced to re-invent themselves. David Jones Limited (ASX: DJS) has now established an online presence, introduced style advisers into every shop and has announced a new “village format” store (a smaller store), with the third one to open in the Melbourne suburb of Malvern.

Myer Holdings Limited (ASX: MYR) recently told a retail forum that it is experiencing online growth of 300% each week, but still has more potential, with online purchases accounting for less than 1% of total sales.

The Foolish bottom line

After being caught with their pants down, traditional retailers are taking it to the online only retailers. Myer’s Bernie Brookes has told a business lunch in Sydney that traditional big retailers will become the top 10 shopping sites within five years.

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Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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