Friday, January 11 2013
Online Retailing: Changing the retail landscape
Online retailing is gathering tremendous pace globally with Morgan Stanley forecasting global online retail sales to represent 9.3% of all retail sales by 2016, up from 4% in 2008. Australian consumers have embraced online retailing given the greater price transparency and access to global retailers.
This has changed the retail landscape with the traditional bricks and mortar retailers struggling under a higher cost base (rent and labour), leading to the price differentials online. Historically, major retailers were able to price their products at significant premiums to international retailers. This was due to Australia’s geographic isolation and the high barriers to purchase goods overseas. The strong Australian dollar has further expanded the pricing differential and with increased broadband penetration, this barrier is reduced. Consumers are now able purchase offshore at prices significantly lower than domestic retail prices. Australian retailers have been slow to respond but are now investing heavily in online capabilities.
From an investment point of view, we have been concerned about this theme for some time and largely avoided investing in this sector. Retailing is undergoing a structural change and we believe traditional retailers will struggle to drive earnings growth. We are more attracted to companies that will be beneficiaries from the continued rise of online retailing such as data centres (store large amounts of data consumed via web), transportation (from increased shipping) and web-based retail sites (transactions via web).
Chart: Online penetration of retail sales
Source: Morgan Stanley Research estimates
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