With only 3 full shopping days left before Christmas, let's throw the spotlight on S&P/ASX 200 Index (ASX: XJO) retail shares. Specifically, 3 leading ASX retail shares that are well-positioned to potentially outperform the market in 2021.
If you've already finished your Christmas shopping for the year, good on you! If you still have a few items to cross off your Santa list, you're far from alone.
Outside of the greater Sydney area, where a new wave of COVID-19 infections has unfortunately seen lockdown restrictions return, shoppers are increasingly returning to brick-and-mortar retailers.
Which is not to say that the rise of online retailing is over. It's not. According to estimates from Macquarie, 20% of consumer spending will be online in 5 years.
But that still leaves the majority of spending occurring in physical stores. And with the rollout of vaccines expected to commence in Australia in February or March, the second half of 2021 could see a major return to in-store shopping.
Whether you prefer to do your shopping on your phone or computer, or face to face with clerks and shoulder to shoulder with your fellow shoppers, the 3 ASX retail shares we look at below have a strong presence in both online and physical store sales.
Cashed up consumers a tailwind for ASX retail shares
Credit Suisse analysts Grant Saligari and Annabelle Diamond are bullish on the outlook for Australian consumer spending in the final days of 2020 and through 2021.
According to the Australian Financial Review, the analysts say:
The market is too bearish on household goods and food expenditure. Under-spending on travel and a substantial savings buffer provide considerable downside support for spending.
The analysts expect the work from home trend established during the pandemic lockdowns to continue, even as more people do return to office. They estimate this could see a 4% increase in spending on electronics and furniture.
While international travel for Australians may recommence by mid-2021, the Credit Suisse analysts believe the tailwinds from cashed up consumers are likely to continue into the 2022 financial year:
A recovery in international travel in FY22 to 50 per cent of its pre-COVID-19 level would imply under-spending. While we acknowledge that travel substitution is likely a transitory impact, it is likely that some extension of under-spending will continue into FY22 at least.
With Australians unable to take international holidays, and many households benefiting from ramped up government support packages and early access to super, the AFR notes that the average Aussie's credit card debt is already down more than $500 year-on-year, while the average bank balance is up $12,500.
And it's not just less debt and more cash in the bank that's likely to drive an increase in spending. According to the latest ANZ-Roy Morgan consumer confidence survey, consumer confidence is also up year-on-year.
Ka-ching!
Why Credit Suisse upgraded these retailers
With this consumer spending picture in mind, Credit Suisse has upgraded its views on these 3 ASX 200 retailers, in part based on the companies' relatively low levels of debt.
First up, Harvey Norman Holdings Limited (ASX: HVN), known for its wide offerings ranging from electronics and appliances to furniture and homeware. Credit Suisse upgraded its view to "outperform" with a target price of $5.30. That's 11% above Harvey Norman's current share price of $4.74.
Harvey Norman's shares reached a low for the year on 23 March, trading for $2.45 per share. Year-to-date the Harvey Norman share price is up 17%.
The company pays a dividend yield of 3.85%, fully franked.
Next up is Wesfarmers Ltd (ASX: WES), whose subsidiaries include household names such as Bunnings Warehouse, Kmart Australia and Officeworks. Credit Suisse upgraded its view to "outperform" with a target price of $55.83. That's 9% above the Wesfarmers' current share price of $51.30.
Wesfarmers pays a 2.97% dividend yield, fully franked. Year-to-date the Wesfarmers' share price is up 24%.
The third ASX retail share to receive an upgrade from Credit Suisse is JB Hi-Fi Limited (ASX: JBH), also raised to "outperform". Credit Suisse set a new target price of $53.02 for the iconic electronics, appliance and whitegoods retailer. That's 10% above JB Hi-Fi's current share price of $48.38.
JB Hi-Fi pays a 3.94% dividend yield, 50% franked. Year-to-date the JB Hi-Fi share price is up 29%.
