Will It Be Coal for Brick and Mortar Retailers This Year?

Australian retail

I’m very easy to buy for at Christmastime.

I’m more than happy to receive a book or a mug. Both of which can be bought online, skipping the last minute rush to the department store.

Today you can buy almost anything online. Which makes you question: Why even go to the store at all?

Most of the largest stores already have a great online presence. Newcomer Amazon.com, Inc. [NASDAQ:AMZN] is also likely to make some shoppers skip the store run altogether.

So, what could happen this Christmastime?

The Australian reports:

‘[Aussie retailers might] face a “subdued” Christmas and potential earnings downgrades in January, according to Citi.

Christmas is vital for retailers because December sales can be more than one-quarter of a retailer’s yearly profit, the broker warns.

Yet retail sales conditions were recently trending 2–4 percentage points lower than before Christmas 2016, and retail foot traffic is down 1 per cent, according to Shopper Trak, says Citi retail analyst Craig Woolford.

He sees both cyclical and structural factors at work, with retail spending slowing because households are spending more on necessities such as utilities and mortgage payments.

Retail spending in decline

The retail sector has been unloved for a while. With retail spending in decline and in the lead up to Amazon’s arrival, investors were counting many retailers out.

However, the push to online shopping isn’t likely to destroy brick-and-mortar retailers anytime soon. Not the strong ones anyway.

Sure, we might buy a book or t-shirt online. But there are items that we just don’t take chances with.

For example, when you buy a couch, you’ll probably want to go in store to buy it. Maybe you’d like to sit on it first, feel it, and make sure it’s comfortable.

The same goes for strong brands. Would you buy jewellery or designer handbags for you partner online?

I’ll bet there’s a good chance you wouldn’t. Why?

Well, it’s not just because it costs a lot of money. But also because the instore experience adds to the outlandish prices a lot of high quality brands charge.

So while it might be tough for some retailers this Christmas, others will probably do just fine.

Cheers,

Härje Ronngard,

Junior Analyst, Markets & Money

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Härje Ronngard

Härje Ronngard

Harje Ronngard is a Junior Analyst at Markets and Money.

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.  

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