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Everyone loves a stooge. Right now, it’s Australians who shop online.
If you believe the media hype, online shopping will bring the retail industry to its knees.
Of course, the recent survey from Macquarie Equities doesn’t help.
It found one in five Australians does most of their shopping online.
The mainstream media jumped all over this data. Headlines from the Age, and the Australian were almost threatening. The Age tells you ‘big retail groups anxiously await return of shoppers’.
The Australian cried ‘Strong currency lures more shoppers online’!
Headlines like this, paint a gloomy picture of the retail market.
But, the survey also explains 73% of shoppers only buy online because of the high Aussie dollar.
Are online shoppers really to blame?
Online shopping is often portrayed as the bad guy by the media.
Boston Consulting Group (BCG), recently carried out a study of consumer confidence. The Australian reported that BCG ‘…found the sharp decline in Australian’s discretionary spending came about despite the consumers feeling more secure about their jobs.’
James Roth, consumer practice lender at BCG said, ‘Australian consumers have a very cautious outlook’. He says Australians are cautious about spending. Of the 21 countries that took part in the survey, Australians are in the top three who plan to cut back discretionary spending.
He said, ‘Nearly half of all [Australian] respondents feel personally impacted by the economic crisis. That’s less than in the US but similar to European countries’.
So if online shopping isn’t a big threat to retailers, what is?
Katrina Ell, an analyst from Moody’s Economy.com said, ‘Slowing jobs and wage growth, as well as the threat of higher interest rates to come has taken a toll on confidence and discretionary spending.’
Sound Money. Sound Investments editor, Greg Canavan agrees. He writes, ‘retailers are under threat from online purchasing’. But he doesn’t believe this is the only cause of a falling retail market.
In his recent update Greg wrote:
‘…the retail sector is plagued with too much capacity. This is the result of many years of household debt growth, which resulted in huge demand for retail goods. Now that debt growth is not so cool, there are too many shops left chasing a dollar. The result is constant sales and price markdowns, a sure sign of too much capacity.’
It’s not all doom and gloom for the retail sector
According to a report in the Australian, Macquarie Equities says ‘…that more than a third of those surveyed would reduce the sum spent online if the dollar fell by 20%’.
A weakening Aussie dollar will drive some dollars back to local retailers. And Macquarie sees growth in retail this year:
‘Based on household disposable income predictions, Macquarie expects that the traditional bricks-and-motor retail sales will grow by about 5% this year.’
Many other analysts have downgraded forecast earnings for retail stocks too.
This hasn’t helped retail stock prices.
But despite the grim news, Greg surprised his subscribers with his latest stock tip.
Beaten down sector could prove to be a solid investment
Greg believes the market has now priced in lower earnings:
‘The market thinks things will be much worse than what these downgraded analyst forecasts suggest. It could well be right, but the fact that a pretty dire scenario is already in the price is a positive.’
But when many analysts are reluctant to recommend retail stocks, you have to ask yourself, ‘what drove Greg to tip a retailer?’
Greg says, ‘Recommending an out-of-favour stock in an out-of-favour sector is always tough. But one of my investment ‘rules’ is that if you feel good about an investment and think others would approve/endorse your decision, it’s probably the wrong one.’
In other words, you should buy when others are still selling.
And now Greg thinks it’s a perfect time to buy one Aussie retailer.
To find out which Aussie retailer Greg has added to his value investing buy list, click here.
Shae Smith.
Assistant Editor,