Retail in need of own therapy as shares shrink

RETAIL therapy is popular among many shoppers, and our retail companies also appear in need of a dose of therapy themselves.

Shares in many of Australia’s best-known retailers have been sinking sharply amid fierce competition from online and overseas, but some smaller retail-related stocks have been dazzling the stockmarket.

Investment specialists say a strong share price rebound for traditional retailers looks unlikely, so they recommend people be picky about where they put their money, and urge them not to ignore overseas opportunities.

The list of big names to feel the wrath of the share market in recent times is long:

Harvey Norman last month suffered its worst one-day fall in 30 years as its profit disappointed and dividends were cut, and is down 26 per cent over the past year;

Wesfarmers – the owner of Coles, Bunnings, Target and Kmart – had slumped 7 per cent in a month before it said on Friday it was offloading Coles into a separate listed company.

Myer shares have more than halved in a year, are down 85 per cent from nine years ago, and have been removed from the index of Australia’s 200 biggest companies;

Woolworths announced an improved profit last month and its shares have been flat over 12 months, but are still 26 per cent lower than five years ago;

JB Hi-Fi is slightly higher than a year ago but has dropped 13 per cent in value since January.

Stockspot founder Chris Brycki said many of our big retailers had been caught out “like kangaroos in the headlights”.

“The big trend that’s been happening since 2009-10 has been most retail businesses in Australia really underestimated the threat of online and the threat of global competition,” Mr Brycki said.

Buying into some of these stocks could be a “value trap”, he warned. “They look cheap, but will keep on getting cheaper.”

Australia’s new breed of fastgrowing retail-focused businesses was unheard of a few years ago.

The share price of online retailer Kogan has more than quadrupled in a year, while payments company Afterpay and fashion jewellery retailer Lovisa have almost tripled.

Mr Brycki said Afterpay and Kogan were higher-risk investments and would face tough competition – in Kogan’s case Amazon – and he preferred buying overseas retail stocks through exchange traded funds.

CMC Markets chief market strategist Michael McCarthy said Australian consumer confidence had been weak since the GFC, while competition among retailers was increasing everywhere “and technology is bringing a lot of that competition to Australia”.

“There are selective success stories but the generic department store model is clearly under threat,” he said. “Beware of value traps, but there are some good prospects. Given the consumer is still missing in action, where are some areas where you can get good value.”

He said future investment winners would use smart branding and marketing to target specific customers.