The retail sector has acted as a drag on the overall Australian share market in recent years. Business and consumer confidence have both remained low due to a number of strong macroeconomic headwinds while investors have remained cautious of the rapidly expanding online retail sector.
Indeed, internet shopping is certainly an area for concern. More and more credit card transactions are being processed for online purchases as consumers recognise the convenience and the wider array of products on offer. Although we will likely see some traditional bricks-and-mortar retailers succumb to the pressure over the next few years, there are also a number whose shares trade at reasonable prices which are well worth adding to your portfolio – particularly with consumer confidence beginning to return.
Shares in OrotonGroup Limited (ASX: ORL) have sharply deteriorated in value over the last 12 months after the company lost a key contract with Ralph Lauren. However, they seem to have stabilised more recently following the signing of two new brands including US clothing retailer, GAP, and Brooks Brothers, which should both boost shareholder returns in the medium-to-long term.
The fashion house's sales are also expected to skyrocket after Kate Middleton toured Brisbane holding the company's "Odeion clutch" product, which reportedly led to the item selling out in all three colours that day. High profile customers like the Duchess of Cambridge herself certainly add to the appeal and the prestige of Oroton.
Oroton isn't the only retailer worthy of a look at today's prices. Given the nature and cheap prices of The Reject Shop Limited's (ASX: TRS) products, the low-margin retailer is largely protected from the changing trends in consumer spending. After trading at roughly $17 a share in January, shares have since plunged to just $9.91 thanks to a disappointing Christmas period. However, the problems appear to be short-term in nature and it has reviewed ways to improve performance going forward. Topped off with a strong balance sheet and cash flows, as well as a 3.4% dividend yield, The Reject Shop could be a huge winner for you in the long term.
Another perfect example is Kathmandu Holdings Ltd (ASX: KMD), which has proven itself to be one of the best in the industry. It recently reported a 10.7% increase in net profit for the half-year ending January 2014 which was driven by improvements in gross margins and cost management, as well as slightly upped sales. Furthermore, like The Reject Shop, Kathmandu is largely protected from the headwinds coming from the online sector given that, when travelling outdoors, customer want to know they are getting the best-quality gear (they would prefer go to a well-recognised retailer than take the risk with lesser-known online stores).
Foolish takeaway
Despite the headwinds facing the industry, the three quality retailers mentioned above are well worth considering and are at very least worthy of a position on your watchlist.
