So far in my ‘industries to avoid’ series, we have looked at the oil and gas industry and travel industry. To recap, oil stock prices have tumbled due to weak demand and the Russia versus Saudi Arabia supply war. Despite being a strong beneficiary of weaker oil prices, the travel industry has fallen off of a cliff due to COVID-19.
The final industry to avoid in 2020 in my opinion is retail, which has seen some direct impacts from COVID-19 but I also believe it may face bigger challenges ahead.
We have already seen some drastic measures taken in the retail industry. Just last week we saw Myer Holdings Ltd (ASX: MYR) temporarily close its doors and stand down staff. Premier Investments Limited (ASX: PMV) will also temporarily close all of its retail stores until 22 April, standing down over 9000 staff worldwide. The company, which is 42% owned by retail veteran Solomon Lew, is also telling landlords it would not pay rents during the shutdown.
Brick-and-mortar based retailers will likely continue to struggle in 2020 as more and more countries implement social isolation or even lockdown measures. Further to this, an unfortunate recurring theme in this series of articles has been the huge number of temporary redundancies. Despite Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOL) doing their best to employ displaced workers, we have already seen massive queues at Centrelink. As unemployment and underemployment grow, it is likely that consumer spending will be further reduced going forward.
The pillars of strength
Along with Coles and Woolworths, some retailers are doing better than others. Online-based retailers, or retailers that have invested in a strong omni-channel approach could benefit in the short term from social isolation. In the long-term they could be winners as subscriptions grow and behaviours change. A pure-play on this is Kogan.com Ltd (ASX: KGN). Or, for a more diversified holding, Wesfarmers Ltd (ASX: WES) own the online store Catch.com.au.
A Foolish thought
If the valuations in the retail industry are too attractive for you to ignore, make sure you have a long time horizon, diversify and invest with cash you won’t need for the next few years.
This series may have seemed downbeat. But it is important to remember that these are just a few industries, and the time horizon I’m looking at is 9 months. Over the longer term, I back the ASX stock market to continue to deliver life-changing wealth generation.
Nearer term, if valuations permit, there may even be buying opportunities in the oil and gas, travel and retail industries. If you already hold stocks in these industries and you liked them before, I wouldn’t necessarily just sell without thinking about it in detail.
The quicker we beat COVID-19, the quicker our lives go back to normal. Following the government’s directives for social isolation and the like not only helps health outcomes, but will help the economy and your businesses get back on the path to growth.
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Motley Fool contributor Lloyd Prout has no position in any of the stocks mentioned and expresses his own opinions. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd and Premier Investments Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. 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 Scott Phillips.