Myer (ASX: MYR) has reported an increase in sales of 0.44% in the first quarter of FY2014, with online traffic more than doubling. After the restructure of online businesses, the doubling of sales is an excellent result, though double of not much is still not much.
Online sales remain a relatively small portion of Myer’s total income, and it is possible that most online sales are from people who already shop at Myer anyway. The real acid test will come when Myer’s online retailing tries to lure customers away from other e-tailers.
While the sales increase is far from bad news, Myer will continue to face stiff competition in its business going forward, particularly from online retailers. In segments where customers know specifically what they want, for instance with brands of perfume and cosmetics, they can purchase online, and online retailers will generally be cheaper because they don’t have the expenses of a bricks and mortar business.
Likewise other items such as linen, gifts, glassware, wallets, belts, handbags, etc., can all be purchased online, allowing cheaper online retailers to compete. If technology is your thing, there are a dozen other bricks and mortar retailers to compete with Myer. One doesn’t generally go to Myer to buy a television, computer or tablet.
Myer’s competitive advantages lay primarily in its ability to leverage its store design, the ability to offer help from knowledgeable staff and to use said staff to drive sales (both of which online retailers cannot do), its customer retention programs, and exclusive Myer-only designs from its fashion labels.
Myer is not a bad business, and it is doubtful that bricks-and-mortar retailers will ever be completely replaced by online businesses. There are however several strong headwinds yet to be overcome for Myer. Thankfully it has developed a capable online offering, and competition from e-tailers overseas may decrease if the Aussie dollar continues to weaken. Keep an eye out.
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Motley Fool contributor Sean O'Neill does not own shares of Myer.