Boxing Day is synonymously known as the biggest shopping day in Australia, with consumers flocking to stores to pounce on the once-a-year bargains. According to the Fairfax Press, 2015 was no different with unofficial figures from the Australian Retailers Association projecting a record-breaking $2.3 billion of sales occurred on Boxing Day, nationwide.
The Retail Council supports these figures, further projecting $7.2 billion of spend to occur between Boxing Day and New Year's Eve, indicating that retailers are in for a purple patch of sales.
Preliminary figures show the biggest winners are online retailers with predictions that online sales will account for approximately 16% of all summer clearance spending. However, according to the Fairfax report, customers who left the comfort of their home to pursue bricks-and-mortar retail generally went to department stores, with the category experiencing 4.3% sales growth compared to Boxing Day in 2014. This means companies like Myer Holdings Ltd (ASX: MYR) and Woolworths S.A. owned David Jones should benefit the most from Boxing Day sales.
The downside
Whilst it may be true that Myer and David Jones are the biggest benefactors (in dollar terms) from Boxing Day 2015, there is one fundamental flaw for investing in them; it is that one exceptional day of sales does not make up for a year of average ones.
Myer has been in the crosshairs of investors on fears that department store retailing is dead. The rise of online retail as well as foreign competition from the likes of Zara and H&M means that Australia's only listed department store has gone backwards in sales and had its share price savaged by short-sellers (losing almost 30% value in 2015 alone and being the second most shorted stock on the ASX). This makes investing in Myer fraught with danger, as one bad set of results could spell disaster.
The alternative
On the other hand, the real winners from Boxing Day sales could be the landlords of Myer and David Jones (and all other stores for that matter). An increase to sales is good for landlords as well, given tenancy fees are often a function of total sales. With retail foot traffic growing, and consumers generally opting for the "click and collect" option when making online purchases, bricks-and-mortar retailers are still in vogue, meaning landlords benefit when sales are up.
Accordingly, here are two retail landlords I think would make for a good investment to ride the trend of Boxing Day sales:
1. Scentre Group Ltd (ASX: SCG)
Scentre Group was spun-out from the 2014 restructure of Westfield Group and Westfield Retail Trust. All Westfield branded property assets in Australia and New Zealand are held by Scentre Group, with Westfield Corp Ltd (ASX: WFD) continuing to hold American assets. This makes Scentre Group highly leveraged to Australian retail.
With Scentre Group being the biggest retail landlord in Australia, it follows that any exposure to retail should start here. The group owns and operates all 43 Westfield branded shopping centres in Australia and New Zealand and boasts an occupancy rate of 99.5% across its portfolio, implying strong demand for its centres. With many of its shopping centres being regarded as shopping destinations, Scentre Group remains well poised to benefit from an up-tick in retail sales.
2. Vicinity Centres Re Ltd (ASX: VCX)
Vicinity Centres (formerly Federation Centres) is Australia's third largest property trust (behind Scentre and Westfield), and was formed through the merger of Novion Property Group (formerly CFS Retail Property Trust Group) and Federation Centres (formerly Centro Properties Group) earlier in 2015. It owns $22 billion of assets under management, comprising various retail assets throughout Australia.
Importantly, the group owns stakes in Melbourne's Emporium and Chadstone Shopping Centres, Sydney's Chatswood Chase and Western Australia's Galleria, all of which are heralded as top upmarket shopping destinations in their respective states. The group is also well diversified by owning all Direct Factory Outlets (DFO) branded shopping centres throughout Australia, meaning its portfolio caters for all markets. This means Vicinity Centres should do well whenever retail sales rise.
Foolish takeaway
It is unknown whether retail stores like Myer and David Jones will continue their Boxing Day momentum into the rest of 2016, making it too soon to buy retail stocks on the back of good figures on Boxing Day. Long-term investing should be about buying companies with sustainable earnings and Scentre Group and Vicinity Centres appear to offer investors just that.
