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3 retail shares to buy for your Christmas bargains

If you have wandered anywhere near a retail establishment in the past week or two you could not have failed to notice that the Christmas livery and advertising has cranked into top gear.

And with good reason, with just over a month until Christmas Day.

For retailers, the trading period leading up to, and immediately following Christmas is the most important of the year, with a hugely disproportionate amount of sales and profitability coming from the summer months.

In fact, a well known joke in retail circles is that shops would prefer to open for the summer months and simply disappear during the rest of the time, as the returns for this relatively short time period dwarf the rest of the calendar year.

But not all retail stocks are created equal, so which three are the best placed to benefit from the annual frenzy of gift buying?

Lovisa Holdings Ltd (ASX: LOV) is a relative newcomer to the ASX, having only listed in 2014. Those investors lucky enough to pick up shares in the IPO have been rewarded handsomely, with the stock up over 30% this calendar year alone.

Lovisa is a vertically integrated retailer of affordable jewellery and accessories, targeted squarely at the 15 – 40-year-old female demographic. The company employs designers in Australia, but conducts all manufacturing offshore. The company is superbly leveraged to gift buying among friends, with affordable statement jewellery aplenty in the stores.

The stores themselves are relatively cheap to run, occupying small footprints which simultaneously lowers rent and staff costs, while still displaying hundreds of different stock keeping units. Lovisa is also a beneficiary of a high turnover, repeat business model, where pieces of jewellery are bought to complement a particular outfit, as the items it sells are affordable.

Super Retail Group Ltd (ASX: SUL), or at least its stable of brands, may be better known to investors. As the owner of the Rebel Sport, Super Amart, BCF, Rays Outdoors and Super Cheap Auto brands, Super Retail is an obvious beneficiary of Christmas gift giving.

The appeal with Super Retail is the amazing amount of turnover it generates through its gift cards, with these vouchers an ever-popular gift for family, friends, hampers and even secret Santa presents. Gift cards also have the added benefit of extra foot traffic to stores and driving additional purchases, as the recipient often adds an item or two using “their” money to complement the value of the gift.

OrotonGroup Limited (ASX: ORL) is Australia’s own affordable luxury brand, competing with the likes of Mimco, Michael Kors and Coach for that segment of the market.

The business was a former high flyer before questionable pricing and partnering decisions brought profitability and sales to record lows. However, the stock has rallied strongly in the past six months, up over 30% as management trimmed underperforming partnerships that were absorbing capital.

In addition, there was a renewed focus on the more profitable upper end of the affordable luxury segment, supported by an end to the ongoing promotional pricing that was eating away at profitability. If Oroton regains its premium position in its home market it could be a niche success story that once again delivers healthy capital growth and dividends to its shareholders.

Retail stocks are notoriously fickle, and much rests on the fortunes of the important Christmas trading season. Of the three stocks in this list, OrotonGroup has the most potential upside, while Lovisa looks the best value of the three.

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Motley Fool contributor Ry Padarath has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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