Macquarie Research, Director’s Cut High AUD favours clicks over bricks

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Director’s Cut
High AUD favours clicks over bricks
Online shopping is a hot topic among our Australian team this week, and
understandably so given the long term impact on retailers and their landlords.
Yesterday, Rob Blythe’s note looked at the impact of the internet on Australia’s
retail sector and the likely success of various online business models. He says
online retail already accounts for 7.2% of retail trade and that the main attraction
of online purchases is the cheaper prices and convenience. By way of
comparison, online retail penetration is lower in the US at 5.3% but higher in the
UK at 8.5%. One of his key conclusions was that online and offline retail can
coexist and grow together, as there are areas where offline retailers have an
advantage. In his view, JB Hi Fi (JBH AU) is one such company due to barriers
to offshore online purchases and he continues to rate the stock Outperform,
forecasting a 12-month TSR of 49%. >> Read Report
Today Paul Checchin reports on the results of a survey of over 3,000 Australian
consumers to gauge their online shopping habits and motivations. He found that
over 90% of people who shopped online did so to get cheaper prices, and in this
respect the high Australian dollar is increasing the amount of money spent on
overseas websites (e.g. Amazon and ASOS). So while the AUD remains high
he sees some downside to current retail landlord forecasts. >> Read Report
Paul’s survey also shows that around one quarter of people surveyed went to a
shopping centre for entertainment or as a social activity. In this light, he believes
regional shopping centres with extensive entertainment and food offerings have
an advantage. As a result, Paul maintains his Outperform on CFS Retail
Property Trust (CFX AU), which he rates as a key defensive pick among the
Australian REITs. Globally, CapitaMalls Asia (CMA SP) is another retail
landlord we like, with Tuck Yin Soong saying it’s seeing healthy traffic and sales
growth in its retail malls across five countries. >> Read Report
Given the advantages of online business models and the high valuations of pure
online retail businesses (e.g. Amazon and Groupon), it seems clear the growth in
online retail will continue. While there will be regional variations, this trend is
likely to play out not just in Australia, but around the world. To succeed in the
new environment, and to ensure their businesses do not go the way of
newspapers, retailers need to adapt to the change and ensure their offer
remains relevant to consumers. In our view, the retailers that will have the
advantage are those with at least a multi-channel model where the bricks and
mortar component is designed to satisfy consumer’s needs for entertainment,
social activity and most importantly instant gratification.
Highlights
 Paul Cavey’s latest China consumer survey shows optimism is rising, while
equity wealth management products are increasingly popular.
 Alan Zimmermann continues to see ACE (ACE US) as a company that can
succeed regardless of the overall industry pricing environment.
 Christian Faitz says the global farming community is committed to invest in
fertilizers and his top pick in the space is Yara (YAR NO).