A surprising success story to come out of these uncertain economic times is the rise of ASX online homewares and furniture retailer, Temple & Webster Group Ltd (ASX: TPW). Despite falling to almost $1.50 during in late March, shares in the company have now surged back up well over $5. This means they’ve gained almost 100% so far this year.
This share price performance is especially impressive when compared to more established competitors in the homewares space. Competitors like Harvey Norman Holdings Limited (ASX: HVN) and Myer Holdings Limited (ASX: MYR). Both companies have lost significant ground this year. The Harvey Norman share price is down 12% in 2020, while for embattled Myer, the loss is closer to 50%. Even the share price of ASX retail darling JB Hi-Fi Limited (ASX: JBH) is only up around 7% this year.
In a business update released to the market on Thursday, Temple & Webster reported year-to-date May revenues of $151.7 million. This is an increase of 68% over the prior comparative period. That strong momentum doesn’t seem to be letting up with the company declaring revenue for the month of June 2020 on track to double that of June 2019.
What is the secret behind Temple & Webster’s success?
Temple & Webster operates an online drop shipping business with no physical furniture showrooms. This business model meant that it was uniquely positioned to succeed during even the worst of the coronavirus. Operationally, the company was able to transition to remote working arrangements far more easily than its rivals. It also proved itself to be more adept at meeting the needs of consumers during the pandemic.
With many retailers closing their doors and the population forced to stay home, consumers moved to shop online. At the same time, demand for home furniture and other homewares spiked. Naturally, with people spending more time indoors, they were purchasing products to improve their homes and make their lives in lockdown more comfortable. Additionally, those working from home purchased home office furniture and other accessories.
In many ways, it makes sense that Temple & Webster outperformed competitors in this market. The lockdowns hit large brick and mortar retailers like Myer and Harvey Norman the hardest. In these uncertain times, the costs involved in maintaining a physical retail presence can drag on a company’s already shrinking profits. The market is clearly viewing growing digital companies operating off a lower cost base to be safer bets in the current climate.
Should you invest?
Given the surge in Temple & Webster’s share price over the last few months, now might not be the best time to buy. This is especially when the economic forecast is for rocky conditions ahead. However, Temple & Webster should definitely be one to add to your watchlists as a potential long-term growth opportunity.
Even as retail stores open up, the coronavirus crisis could have forced a permanent change in the way people shop. Consumers who may have never shopped online for homewares and furniture before have been doing so for the first time. And while that is bad news for malls and local shopping precincts, it’s great for e-commerce.
This could precipitate a radical reshuffling of the retail market share away from the traditional big players and towards the next generation of newcomers like Temple & Webster.
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Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. 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.
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