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Browsing the retail industry aisles

It’s a fact – online retailing has proven itself to be a major threat to the very existence of brick and mortar retailers. The quality service, cheap prices, and customer convenience offered by online behemoths such as eBay (NASDAQ: EBAY) and Amazon.com (NASDAQ: AMZN) have shattered profits for Australia’s biggest physical retailers for years. With companies releasing their half period results, it’s time to review which companies are worth shopping for.

David Jones Limited (ASX: DJS) will continue to focus its attention on its category mix in a bid to increase revenue for the current and future periods, after announcing a total sales revenue decline of 1.4% for 2Q13 compared with 2Q12. While growth from its Fashion and Beauty category was pleasing, David Jones will strategically cease selling products such as DVDs, music and games, instead opting to allocate more space to higher margin categories. David Jones will continue to decrease promotional discounting activities, recognizing that improving profitability on high margin products is a must.

JB Hi-Fi Limited (ASX: JBH) shareholders rejoiced after the company reported net profit after tax of $82.1 million for HY13, an increase of 3.1% from HY12, whilst increasing interim dividend payouts by 2% to 50c per share. One disappointing result was a decrease in comparative store growth by 3.5% — a result which was largely influenced by deflationary pressures being experienced in the Electronics market (particularly televisions). However, CEO Terry Smart states that low-price marketing and a continued focus to compete with online retailers will “ensure ongoing maximization of sales and earnings growth opportunities”. Shares in JB Hi-Fi have jumped 35% since the beginning of February – ‘JB, you’ve done it again!’

Myer Holdings Limited (ASX: MYR) has yet to release its half year results, but investors will be expecting positive signs of growth from the company, with shares having soared over 80% since the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) lows experienced in June-July 2012. Much like David Jones, Myer is focusing on allocating more store space to higher margin categories in an attempt to increase profitability of sales.

Foolish takeaway

Retailers have been shunned by investors in recent times due to the uncertainty in the industry. Whilst these companies still face turbulence ahead, the businesses with quality foundations and innovative tactics will prevail. Bearing heavy risk, buying into these companies could reap very impressive gains in the future.

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