Market analyst’s view: Invest where you shop

Investors looking to gain exposure to the retail sector would do well to consider their own shopping habits.

Retail is actually alive and well in Australia, despite the doom and gloom headlines. Consumption figures indicate spending remains strong on services and online.

The big department stores such as Myer and David Jones are offering huge discounts and turnover figures suggest we are taking advantage but this is not a sustainable long-term business model. The companies know this and both have flagged a strategy overhaul with less focus on heavily discounted goods, especially in the electronic space.

Fighting a discounting war against competitors or online rivals can exact a heavy toll – a fact that the likes of Coles, Woolworths, Harvey Norman and JB Hi-Fi would do well to heed.

The darling of the retail sector is Super Retail Group, whose ability to maintain margins in tough times is quite staggering. Two of their key brands, Rebel Sport and Super Cheap Auto, continue to produce strong results, possibly as a function the Australian love of cars and sport, as much as anything else!

Niche retailers are able to more easily maintain margins and brands such as Kathmandu, Premier Investments and Oroton are also showing satisfactory headline sales numbers and have positive outlooks for 2013.

Premier Investments saw strong growth for its Smiggle brand in Asia, a fact that will be encouraging for Oroton as it looks to make inroads into Asia in 2013 to combat losing exclusivity on Ralph Lauren products in Australia.

Investors should consider companies with a strong online presence, and ‘real’ growth prospects rather than cost-saving initiatives and an Asian focus, if possible.