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Myer heads online

While department store group Myer Holdings’ (ASX: MYR) results weren’t as racy as one of its fashion parades, the forecast increase in online sales was more exciting, although off a small base. Currently, online makes up only 1% of company sales but CEO Bernie Brooks expects this figure to grow to 10% within five years.

Myer, of course, is not alone in attempting to carve out an online strategy alongside its “bricks and mortar” stores. Rival department store owner David Jones (ASX: DJS), along with fashion retailers such as Just Jeans owner Premier Group (ASX: PMV), and La Senza owner Specialty Fashion Group (ASX: SFH) are also in the midst of rolling out online strategies.

Investors need to be aware that company forecasts are simply “guesstimates.” While a lot of thought and analysis may go in to management forecasts; at the end of the day, they are ultimately making an educated guess of the unknowable.

As international brands ramp up their presence in Australia (such as Zara, H&M, and Top Shop to name a few) using a low-cost structure of a few flagship stores to complement their online offerings, competition for the consumer dollar will continue to increase. Consumers will undoubtedly become more comfortable with “e-tailing” and this will lead to even more competition as consumers expand the universe of online shops they purchase from.

Gerry Harvey, founder of Harvey Norman (ASX: HVN) knows only too well that online is putting a lot of strain on profit margins. Fools need to clearly understand how a company’s profitability will alter by increasing sales through online platforms at the expense of bricks-and-mortar shops.

Foolish takeaway

Forecasting the future is always a tricky business and CEOs are not in the habit of being overly pessimistic. With this in mind, it would be Foolish of us to believe retailers’ rosy expectations for capturing significant shares of the online market — we should be even more suspect of how profitable that share will ultimately be.

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Motley Fool contributor Tim McArthur owns shares in Myer and Specialty Fashion Group. 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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