What does 2021 hold for ASX retail shares?

After the challenges of COVID-19 in 2020 caused a tough year for ASX retail shares, what does 2021 hold for the fragmented industry?

| More on:

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

2020 was a tough year for the retail sector and many ASX retail shares. Shops were shuttered globally in the effort to fight COVID-19, putting a major dampener on sales. Retail sales in Australia fell more than 17% in April, the greatest fall on record.

While spending was down in the June quarter, the September quarter made up for it with sales rebounding above pre-COVID levels. Pent up demand was unleashed as restrictions eased, with retailers seeing a surge in volumes. Positive momentum continued into the December quarter, with Deloitte predicting growth of 2.6% in retail volumes over 2020

Still, spending was uneven. Clothing, cafes, and department stores lagged, while spending on food and household goods has been above pre-COVID levels. With physical stores closed, consumers in lockdown turned to online for their purchasing requirements.

This accelerated a trend which has been growing swiftly over the past few years. Rapid growth in internet penetration and increasing acceptance of online shopping as a feasible and safe alternative to in-store shopping has seen digital commerce boom. 

So as we head into 2021, what can we expect from ASX retail shares? This depends on the sector they operate in and the strength of their online presence.

Household goods are expected to continue to perform well as consumers spend more time living and working at home. Those peddling computers and electronics should continue to benefit from increased demand. Retailers with a strong online presence will be best placed to take advantage of the shift to online that accelerated last year. 

Household retailers 

Online household goods retailers Kogan.com Limited (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW) both reported record sales in 2020.

Kogan saw gross sales rise by a record 39.3% in FY20 to reach $68.9 million. The company has reported strong performance in the first few months of FY21, with sales expected to have peaked over the Christmas period. Kogan's impressive 2020 sales performance led to a 155% increase in the company's share price over 2020, with Kogan entering the S&P/ASX 200 Index (ASX: XJO) in December. 

Kogan is a clear beneficiary of the move to online shopping. In an ASX announcement on 17 August 2020, founder Ruslan Kogan said:

There is a retail revolution taking place as more and more shoppers learn about the benefits of eCommerce…once someone discovers the benefits of online shopping, I struggle to see why they would ever go back to the old way of doing things. After almost 15 years of preparation, the revolution occurring in retail represents a significant opportunity for Kogan.com.

Kogan is not the only beneficiary of this shift. Temple & Webster reported a 74% increase in full year revenue in FY20.

Australia's largest eCommerce company in the furniture and homewares space, Temple & Webster saw active customer numbers increase 77% in FY20 to almost half a million. The company is growing its market share even as its brick-and-mortar competitors take online more seriously.

Temple & Webster highlighted that it is benefitting from the increasing advantages of scale as it gets larger. In the company's latest AGM address, the CEO commented, "the bigger we get, the better and stronger our customer propositions becomes, which is a virtuous cycle." 

Another household goods retailer with strong momentum coming in 2021 is Adairs Ltd (ASX: ADH). Adairs operates both online and through physical stores. When physical stores shut in 2020, Adairs saw a significant increase in online sales, a trend which has continued. In the first half of FY21 to December, online sales were up 99.7% on the prior corresponding period. Online sales represented 39% of total sales versus 20% in the same period of the prior year.

In a trading update on 8 December, CEO and managing director Mark Ronan said, "it is now clear our first half FY21 result will be outstanding and builds on the excellent result in FY20…these gains extend across all aspects of our business with Adairs achieving strong growth through our integrated omni-channel model."

Adairs has forecast group sales of $235 million–$245 million for the first half of FY21, well above the $179 million achieved in the prior corresponding period.  

Electronics and beauty 

JB Hi Fi Limited (ASX: JBH) also had a stellar 2020. The electronics retailer recorded a strong first quarter for FY21 with total sales growth of 27.3%, compared to growth of 4.7% in the first quarter of FY20. This growth was achieved despite store closures in Victoria with the online business continuing to scale. Online growth combined with continued in-store sales momentum has resulted in a strong start to FY21. 

Newcomer Adore Beauty Group Ltd (ASX: ABY) debuted on the ASX in late 2020 and is also reporting strong momentum. The pureplay online beauty and skincare retailer reported better than expected November promotional sales.

Additionally, the extension of the COVD-19 lockdown in Victoria delivered stronger sales for the company throughout the period. As a result, Adore Beauty upgraded its first half FY21 forecast revenue to approximately $95.2 million, 7% above the prospectus forecast.

CEO Tennealle O'Shannessy said, "we are pleased to report strong sales ahead of our prospectus forecasts. The business has continued to scale, deliver content and meet the needs of our customers at a time when they need it most." 

ASX retail shares in 2021 

There is no doubt Australian retailers will be hoping for an easier ride in 2021 following the disruptions of 2020. As we have seen, changes in the way we shop and what we shop for means some are in a stronger position than others. This has resulted in the retail sector fragmenting, with some ASX retail shares expected to perform strongly in 2021 while others may have a bumpy road ahead. 

Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends ADAIRS FPO. The Motley Fool Australia has recommended ADAIRS FPO, Kogan.com ltd, and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A man sees some good news on his phone and gives a little cheer.
Broker Notes

These ASX shares could rise 20% and ~40%

Analysts think buyers of these shares could generate big returns over the next 12 months.

Read more »

Two brokers analysing stocks.
Share Market News

Brokers name 3 ASX dividend shares to buy

Analysts think income investors should be snapping up these shares.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Share Market News

Here's when Westpac says the RBA will now cut interest rates

Have things changed since last week's RBA meeting? Let's find out.

Read more »

kid riding a plastic go kart with his hands raised in the air with mountains in the background symbolising winning a race
Opinions

Down 15% in 4 months, is it time to buy this ASX growth stock?

I think this ASX growth stock is a great performer.

Read more »

A man in a supermarket strikes an unlikely pose while pushing a trolley, lifting both legs sideways off the ground and looking mildly rattled with a wide-mouthed expression.
Consumer Staples & Discretionary Shares

The Woolworths share price is down 16%: Time to buy the stock?

I think now looks like a good time to put this supermarket stock in the shopping basket.

Read more »

a female bank teller smiles warmly as she hands over a piece of paper to a female customer while a large vase of tulips rests on the bank counter.
Bank Shares

Can the good times keep rolling for ASX 200 bank shares in FY25?

Bank stocks have screamed up the charts in 2024, with CBA setting a new all-time record on Friday.

Read more »

Exhausted young Caucasian woman lying on comfortable sofa in living room sleeping after hard-working day, tired millennial female fall asleep on couch at home, take nap or daydream, fatigue concept
Healthcare Shares

ResMed shares are in a two-month lull. Is this a chance to buy?

ResMed shares are still trading below the price targets of several brokers.

Read more »

A female stockbroker reviews share price performance in her office with the city shown in the background through her windows
Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »