Themes we like: Online Retailers

October 9, 2020

In the past two quarters, lockdowns and work from home schemes forced people to change their consumption patterns towards online shopping. It is no surprise that online retailers have benefited from the shift as reflected in their profitability and share prices. Pure online retailers like Temple & Webster (TPW) and Kogan (KGN) have performed a lot better than multi-channel retailers, like Lovisa (LOV) and Nick Scali (NCK). Some people think the hype on online retailers is going to end. But we have a different opinion. We think the growth continues for a long time.

 

Long Term Trend

Prior to lockdown, certain Australian online retailers were already experiencing tremendous growth rates up to 55% yoy. This strong growth trend was supported by total retail sales growth and a rising share of online sales as % of total retail sales. From 2014 to 2019, e-commerce sales as % of total retail sales increased from 3% to 5%.

 Source: ABS

 

Since March 2020, an even stronger force has fostered the growth of online retail sales. Many cities were going under lockdown, nonessential businesses ordered to close and citizens asked to avoid public places. During this period of isolation, consumers were forced to change their purchase habits. Many consumers got a feel for what full-blooded online shopping feels like. We believe that this shift to online spending will be permanent and online retailers will benefit from it. After all, our e-commerce to total retail sales ratio is still 2 years behind the United States. There is still plenty runway ahead.​

 

Two Key Sectors to Focus

Not all online retailers are the same. Some sectors, for example variety stores and fashion & apparel, have experienced a higher growth rate than others historically. We believe that those high growth sectors will continue to outperform other online retailers.​

 Source: Australia Post Inside Australian Online Shopping 2020 eCommerce Industry Report

 

 

All in all, we believe that the online retailing industry will enjoy long term growth supported by the lockdown scheme. Online variety stores like and fashion & apparel like City Chic are the online sectors we will continue to focus on.

 

Till next week happy investing.

 

Michael & Kenny

 

 

 

 

 

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