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Which retailer should you buy?

With record low interest rates, rising house prices, a bull in charge in the stockmarket and coming up to Christmas, now may be a perfect time to invest some spare cash into a sector that may benefit the most.

Yes, our much maligned retailers have not had a great time since the global financial crisis struck. Having survived the GFC, retailers that had basically depended on charging whatever they wanted to Australian consumers were faced with the prospect of shoppers heading online in droves. With the Australian dollar trading above parity with the US dollar, it was a great time for shoppers to look offshore.

Add in the fact that any overseas purchases under $1,000 are also GST-free, and suddenly Australian retailers’ prices were wildly uncompetitive.

But all that may be changing.

The Australian dollar is now trading below parity, and at one stage fell below 90 US cents. Australian retailers have wizened up, ramped up their online offerings, pushed international suppliers for better prices and become more competitive. Record low interest rates, house prices rising and a rampant stockmarket may raise consumers’ confidence to go out and spend, so here’s some stocks you might want to consider.

The Reject Shop (ASX: TRS) is likely to benefit whether consumers increase their shopping spend or not. The company has been involved in a massive rollout of new stores, and will have opened around 80 new stores within 2 years by June 2014. That is likely to drive strong growth for many years, and would be enhanced by an uptick in consumer spending.

Specialty Fashion Group (ASX: SFH), which owns women’s fashion stores Millers, Katies and Autograph amongst others, has more than 900 stores across Australia and New Zealand. The company is currently trading on a prospective P/E ratio of 11.3, and paying a dividend yield of more than 6%.

Nick Scali (ASX: NCK) imports and sells household furniture and accessories under a number of brands. Nick Scali could also benefit if the housing and construction sector picks up, more houses means more furniture required. Currently trading on a prospective P/E ratio of 15.7 and paying a dividend yield of around 5.7%, you may want to add Nick Scali to your watchlists.

Foolish takeaway

Other retailers such as Harvey Norman Holdings (ASX: HVN) and JB Hi-Fi (ASX: JBH) could also be set to benefit over at least the next few months. By the time they report in February, it will probably be too late.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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