Retail Stores (Stocks)

It’s clear that people are shifting their buying habits online. For the last 20 years e-commerce has grew at double digit rates! The e-commerce share is now hovering around 15%-20% (from most estimates pre-covid). While I recognise the pressure e-commerce has on brick and mortar I don’t think traditional retail is going out of business’s. Eventually, the growth of ecommerce will flatten out and revert to something like traditional retail. I do think that traditional brick and mortar will remain large enough to sustain modestly positive sales growth over time as it has the last 10 years or so. Shopping still has the “experience factor” and there are some industries that are harder to shift online.

When I look at my own habits, for example, convenience- if I want to get some daily food essentials I’m not going to buy online. I think the likes of Tesco PLC in the Irish and UK market still has some growth over the long term. Another one is DIY and home stores. If I’m looking to do a job around the house, the things I need can often be the most unusually shaped, niche, and unclear product or fitting. Sometimes I wouldn’t even know the name of what I’m looking for to search it on Amazon. Similarly, if buying a Sofa you can’t feel the quality or try it out or see it in person if you buy online. There might, therefore, be opportunities in the likes of Grafton PLC (owner of Woodies, Chadwicks, Heiton Buckley). The last one that comes to mind for me is luxury goods and jewellery (thinking LVMH, Tiffany, PVH). For these it is both the in-store experience factor (has anyone’s fiancé ever said- “lets have a look on Amazon for my engagement ring? Lol”) and the risk of getting fakes online. There's also the fact that traditional can and will go online to offset some of the decline of in-store, although their market share online mighn't be the same as it would have been from in-store.

Having said that, I’m not sure the bull case for traditional retail? I think other than on valuation grounds, its hard to make a great case for retail? I do see some value in certain stocks, but I’d rather pay a bit more for industries with more positive tail winds and higher margins that benefits from a secular trend towards online. When looking at any industry, I like positive tail winds in a growing industry and try to pick the market leaders. I also try to diversify. I’ve held a couple of e-commerce plays for a few years- Alibaba and Amazon being the biggest positions, with smaller positions in Jd.com, SEA and Vipshop.