Business & Investment

IW Long Reads: Lost in the “Amazoned” jungle

As England endures its third national blockade, unimportant stores remain closed and it’s easy to remain bearish on the 2021 retail outlook.

In fact, throughout 2020, the Covid-19 pandemic simply intensified the brick and mortar space that was already under pressure in both the UK and the world, and many stores had to close their doors. ..

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So should investors simply avoid retailing, or are there any factors to leverage in the sector’s transition to the digital age?

According to data from IMRG CapGemini, online retail sales in the first week of June increased by more than 40% in the same week of 2019.

In the United States alone, e-commerce increased from 15% of total retail sales at the end of 2019 to 25% at the end of 2020.

Dont return

For Alison Savas, Client Portfolio Manager at Antipodes Partners, these changes in consumer behavior remain here, even in a reopened environment.

“The retail industry as a whole, especially retailers that rely on mall foot traffic, had a permanent shakeout,” Savas says.

“In the United States, we see some high-profile bankruptcies, such as Neiman Marcus (Premium End Department Store) and JC Penney, a mass market department store.”

As a result, Savas states that within Antipodes’ global portfolio, the team is focusing on retailers, also known as “omni-channel” operators, who can “seamlessly span” both the offline and online worlds.

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“A good example is a retailer like Ulta Beauty, one of the largest specialty beauty chains in the United States, bringing together to offer consumers both mass and prestige brands,” she said. Says.

“The beauty industry is growing at a fairly predictable rate of 3-4% per year, but Ulta has more market share, primarily at the expense of the very long tails of department stores and small market participants. I think it will work better than that by earning.

Covid was forced to close 1,200 stores in Ulta, but Savas says the business was well-placed from previous investments in e-commerce platforms, resulting in triple-digit online sales growth.

Brave and new world

Thomas Makey of Gresham House Ventures states that the trend towards online is neither new nor temporary. Even before the lockdown, he claims that the rise of e-commerce already seemed “relentless.” It’s just that Covid provided an amazing booster for growth.

Nonetheless, he says he has created a pandemic-burning platform for those retailers who are not yet fully engaged in e-commerce.

“Almost all retailers had to accept online sales, whether they were pure physical stores without a digital presence, or whether they had already taken tentative steps,” said Makey. I will.

“For many retailers, that’s a daunting prospect. Online isn’t just a direct connection to consumer channels to be compared to other routes to the market.”

Instead, Makey states that the online market is currently diverse and widespread. He wants to make e-commerce revenue retailers have hundreds of sales channels around the world, each offering a different type of opportunity, as well as raising different challenges. Say you are.

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“The world of e-commerce is no longer the choice between selling from your own website or through Amazon or the eBay store, but there are hundreds of markets around the world,” he claims.

“Each provides access to a slightly different subset of consumers-sometimes small but very profitable-many of which are not reachable on their own in a cost-effective manner. . “

For this reason, Makey believes that some of the biggest winners in the transition to e-commerce will be found in an increasing number of companies that can help retailers adapt to the demands of digital trading.

“By leveraging new technologies and service models, these companies can unleash their clients’ online retail potential,” he says.

Survival of the fittest

As demand for online retail grows, Mark Baribeau, manager of the PGIM Jennison Global Equity Opportunities fund, says traditional retailers who are not fully adopting new technology are facing disaster.

“Online presence is now a prerequisite for survival, but websites alone are not enough to succeed in today’s increasingly digital and interconnected world,” says Balibo.

“Not all retailers can serve customers who are accustomed to immediate satisfaction, seamless trading options, and choosing products and shipping methods to suit their personal tastes.

“Historically, supporting this type of business model required a large investment in infrastructure and logistics.”

Baribeau states that the case study is Amazon. He said that much of Amazon’s success was due to the arrival of digital native millennials and the failure of other retailers to effectively expand their business to meet the demands of this important demographic. Claims to be due to force.

“Today’s retail leaders combine a powerful digital ecosystem with a great customer experience and convenience. It’s a source of resilience in the pandemic and will last for years to come. It’s also a path to great growth, “he says.

Acquiring “Amazoned” is a serious threat to businesses and industries, but Baribeau says companies like Shopify (which they say are cost-effective e-commerce-enabled services) are using digital means around the world. Helps SMEs compete globally.

In fact, Shopify has a five-year combined annual growth rate of 46%, but revenues in the second quarter of 2020 alone were the previous year as many companies quickly launched online operations to “survive as well as prosper.” It increased by 97%.

“The vertically integrated omni-channel brand that manages distribution is in a good position to succeed in retail,” he says. The “Direct-to-Consumer (DTC) model eliminates intermediaries and provides brands with price controls and important information.

“This intelligence enables us to build a demand-driven supply chain and better serve the evolving consumer needs. Customer service boosts sales and profits for both brands and investors.”

According to Balibo, Nike and Lululemon are examples of companies in the fast-growing athleisure market, where DTC sales are growing dramatically.

Nike has quintupled DTC sales over the last decade and is now 35% of total sales, while Lululemon’s DTC sales were 61% of total net sales in the second quarter of 2020. It was 25% in the second quarter of 2019.

Death in a retail park?

For all the constant stories about high street death, Calum Bruce, investment manager at Ediston Property Investment Company, says physical retail real estate still has signs of life.

“Busy parking lots and queues meandering around commercial centers outside the town highlight the resilience of physical stores,” says Bruce.

For Bruce, pandemics have facilitated the penetration of e-commerce, which represents a shift in shopping habits to an omni-channel approach that includes online shopping and in-store shopping.

“Retail parks promote this flexibility by offering adaptive units that can be used for online delivery of last miles, click-and-collect, or face-to-face shopping,” he says.

“For a long time, retail parks were unfairly canceled after being put together with high street stores and shopping centers under the umbrella of retail real estate.

“This sector has been oversold before Covid-19, and logistics, which serves online sales, has been welcomed as the winner of the New World Order.”

However, Bruce believes that retail park potential remains undervalued and demand will recover as visibility in the subsectors is reestablished.

“Convenience clearly remains important to many consumers,” he says. “During a pandemic, consumers have become accustomed to shopping in a safe and socially distant way, often outdoors in retail parks with ample parking space. Therefore, retail parks are pandemic. During that time, it was more resilient than the other subsectors of the market. Tenants reporting good levels of trading. “

As a result, in contrast to many high-street retailers, Bruce has strong results from its retail park’s flagship Dunelm, B & Q, Home Bargains, TK Maxx and Pets at Home, with B & M becoming the FTSE 100 and Aldi. Has announced. Aggressive expansion plan.

“We believe that now that valuations have bottomed out and rents have been rebased, it’s a great time to buy in retail parks,” he says. “It was all the rage for investors to distinguish between retail subsectors, but now we are more confident that retail parks are on the right side of change.

“With yields reaching 6% and discounts on NAVs reaching 20%, we believe that mutual funds exposed to this sector are attractive investment offers for today’s level of knowledgeable investors. I will. “

IW Long Reads: Lost in the “Amazoned” jungle IW Long Reads: Lost in the “Amazoned” jungle

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