Westfield Group (ASX: WDC) is one of Australia’s largest companies and one of the world’s strongest landlords, yet its shares have substantially lagged behind the broader S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) for a number of years. In fact, its shares closed at $10.26 yesterday, which was one cent below its closing price on the same day five years ago. So why has it performed so dismally? And does its poor performance mean that it is a stock to avoid?
An article written in The Australian Financial Review earlier in the week highlighted the vast changes blanketing the bricks-and-mortar retail industry. Online retail is growing at a rapid pace offering consumers a more convenient way of shopping while ‘almost anything’ can now be purchased through a smartphone, tablet or credit card. At the same time, it is allowing businesses to avoid the hefty rent payments or fit-out costs resulting in the ability to sell products at cheaper prices.
It also highlighted how the mall is becoming a “destination” as opposed to simply being a place to purchase goods from our favourite stores. Some of the main attractions at shopping centres now seem to be gyms or cinemas, restaurants or massage spots, rather than key retail stores.
To quote the article, it says: “Five years from now, I’d imagine the mix of retailers in Westfield will look very different. I expect to see more service-based businesses such as gyms, doctors and specialists occupying space, while seeing almost no new retailers and a serious decline in square footage being occupied by Australia’s top retailers.”
Certainly, there is a great appeal to shopping online. I’ve certainly found products being sold online at a fraction of the price some of my favourite retailers have been offering it for. Likewise, I’ve found some products being sold online that my favourite retailers didn’t even stock!
In most ways, I completely agreed with what the writer of the article had to say. The shopping mall certainly isn’t what it used to be and will likely continue to change with some retailers succumbing to their online competitors.
However, I still like Westfield as an investment case. Although times are changing, the company is changing too by divesting from centres it believes will underperform whilst at the same time redeveloping its more promising stores in order to attract more and more customers, whether that be for its retail offerings or the various other services on offer.
In particular, I believe its international assets hold enormous potential. Its Ground Zero mall, located in New York, will thrive amongst the areas expanding white-collar workforce, while its Westfield London and Croydon centres (located in London’s south) are also very promising.
To quote the article one more time, it says: “Westfield’s share price has been flat and declining since 2009 – and that’s no accident.”
Again, I agree that its shares have declined for the very reasons mentioned above, but I also think there’s a solid opportunity ripe for the picking that investors are looking past.