By MoneyMorning.com.au
In 1998, upmarket US department store chain, Nordstrom [NYSE: JWN], launched its online shop. It was one of the first big department stores to move from catalogue shopping (a large American trend in the 1990s) to internet sales.
And now, a decade later, this transition has paid off. It has created a shopper-friendly website, helping online sales top $1 billion dollars last year. About 10% of Nordstrom’s total revenue. The stock price hasn’t done too bad either.
Nordstrom [NYSE:JWN] stock up 267.78% since the web store launch
![Nordstrom [NYSE:JWN] stock up 267.78% since the web store launch](http://www.moneymorning.com.au/images/mmw20120310a_lge.jpg)
Gerry Harvey (owner of the Harvey Norman retail chain) argued back in March 2011 that goods bought online from overseas merchants don’t have GST on top of the price… This makes them cheaper for Aussies to buy, which, Harvey says, is stealing sales from Aussie-based retailers.
But perhaps Aussie retailers don’t have that to worry about after all…
The Australian Communication and Media Authority’s (ACMA) ecommerce report on internet shopping habits for Australians had some surprising results.
According to the ACMA’s latest ecommerce report…
- 59% of Australians shop online
- Online shopping is up 53% from two years ago
- 70% of Aussies in remote locations buy stuff on the web
- And, surprisingly, 53% of Aussies like to buy from Aussie retailers
The evidence from the ACMA report clearly suggests Aussies want to buy from domestic companies. But big Australian retailers, like Myer, David Jones and Harvey Norman have been slow to embrace this.
Probably because no one wanted to make the first move into the market after the dot-com crash of 2000…
No Aussie business wanted to be the first to invest heavily in another ‘dot-bomb’ enterprise.
Maybe it was fear. Or retailers were too late to capitalise on a growing trend. But by letting the chance slip past, retailers such as Harvey Norman, Myer and David Jones have seen their stock prices tank.
But that may be about to change…
Since Nordstrom announced its $1 billion sales success using the web, David Jones [ASX: DJS] has decided it wants to copy Nordstrom’s model. ‘They’ve been operating an online business for just over a decade and they’re doing about 10 per cent of sales and about 20 per cent of EBIT (earnings before interest and tax) which has come from online,’ said CEO of David Jones, Paul Zahra, on Nordstrom’s online turnover
The thing is, DJs has dabbled in online retail before.
It set up an online shop in 2000. But after the dot-com crash, DJ’s management shut down the shop front. That seems a waste, considering the company spent $28 million to set up the site.
But the ‘relaunch’ of the David Jones online store (in November 2010) hasn’t done much to boost investor sentiment. Since the web shop started up, the David Jones share price is down 44.46%.
DJs may want to copy Nordstrom’s $1 billion turnover, but reaching 10% internet sales might be harder than it thinks. For the 2011 financial year, David Jones turned over $2.017 billion. Internet sales for the company accounted for just 0.2% of revenue. Barely $3 million. In order to reach 10%, it’s going to need to increase its online sales 5,000%.
DJs isn’t alone in the below expectations internet revenue department either.
Australia’s other major department store chain, Myer [ASX: MYR], launched its limited online store in 2007 (selling mostly perfumes and gift cards). And the full shopping website came online in March last year. In 2011, internet sales accounted for $5 million of Myer’s sales… on par with David Jones at a small 0.18% of revenue. And the share price has tanked 35.73% in that time.
And what about Gerry Harvey? He had high hopes of Harvey Norman [ASX: HVN] capturing 5% of revenue through online sales… and less than two months since its launch, internet sales make up 0.5% of sales.
Of course, it’s still early days. And given the time to grow and develop, Gerry could one day make 5% of all his sales through the internet. When that will be, who knows?
The fact is, the opportunities for online sales were there a decade ago. Yet the major Aussie retailers just weren’t interested
Sure, growth in retail is small, coming in at 0.1% for the December quarter last year. But would these companies’ revenues and stock prices have suffered as much if they had developed an online shopping outlet sooner?
As you’ve probably seen in the past, taking chances can pay off. And it certainly did for this one small Aussie company who made the move online and returned higher revenues and a much higher stock price to investors.
Oroton Group [ASX: ORL] isn’t an everyday company. It specialises in luxury items. Handbags, wallets, belts, small luggage bags, heck even a key ring from the company will set you back a pretty green $100 note. The average handbag from Oroton costs about $500.
In 2006, when Oroton Group Ltd’s share price was scraping around the bottom, the company took a gamble. It launched a website to sell its goods online. Since then, its share price has moved 346.93% higher.
And despite offering leather goods that cost more than a set of tires for a small car, it was able to report a 12% increase in revenue for 2011.
Sally MacDonald, the chief executive for the company, confirmed its commitment to its online presence rather than physical stores.
‘Online is giving access to a consumer pool that their store network previously did not allow for, which is bringing very strong sales through their online channel.’
In fact, the company plans to close less profitable stores when leases expire and invest that money back into web sales.
In 2010, the Oroton online store became one of the company’s ‘top 5′ most profitable stores. Reducing business costs along the way.
And even though the company has distribution rights to another luxury brand, Ralph Lauren in Australia and New Zealand, the Oroton online store accounted for more than 6% of total brand sales last year.
Not only has there been significant capital growth. Investors have seen the dividend grow 10 times – from 5 cents to 50 cents – since the company introduced web sales.
The market presented an opportunity and the Oroton Group took the risk.
Let’s say, that Oroton ‘read’ the market right. And Myer, David Jones and Harvey Norman got it wrong. Judging by the way the market is pricing them right now, they’ve paid the price.
Does that mean you should snap up these beaten-down retail stocks now, in the hope their new web presence will turn sales and sentiment around? After all, now they know what went wrong, they’ll fix it and before you know it… they’ll report triple-digit gains?
Not likely.
They’re behind the times. The internet is old. Mobile technology is growing. These companies aren’t leading the pack. They’re chasing the crowd.
If you’re looking to bag yourself an explosive triple-digit winner, you should look at companies willing to try something new. Something innovative. Not another ‘me-too’ company chasing after the game changers.
Like Oroton, those companies are out there. But you have to find them. And investing in them means you take on the risk that they’ll fail – and if they do, you’ll lose your money or get stuck with a worthless stock.
But, they could turn out to be onto something… something the consumer wants.
And if the company calls it right, buckle in and enjoy the triple-digit ride.
Shae Smith
Editor, Money Weekend
The Most Important Story This Week…
The worst enemy of every investor is usually themself. Because investors almost always allow their emotions to run riot in the very moments that call for calculation and logic. The fact that every investor is aware of this phenomenon doesn’t alter the crowd response. People sell in bear markets and buy in bull markets. But to “buy low and sell high”, you need to do the opposite – accumulate beaten down shares in the bear market and sell in the bull.
When investor sentiment turns to fear, risky small cap stocks are crushed. For certain companies, prices drop far below fair value. These are the very winners that will rise the highest in the next bull market. But you need to buy them when you natural reaction is to want to play it safe on the sidelines. As Kris Sayce writes in Why I Couldn’t Care Less About The Next Bailout When it Comes to Buying Shares, with an appropriate risk management strategy, the rewards for courage can be staggering gains.
Other Highlights This Week…
Dan Denning on Why Energy Resources Are The Only Reason to be Invested in This Market: “If you’re going to be in the market at all right now, you might as well own companies that give you the chance to make five or 10 times your money in the next five years. Unconventional energy stocks fit that description. In the bigger picture, you want an investment portfolio you can sleep with at night.”
Matthew Partridge on Even China Admits a Hard Landing is Getting More Likely: “On the one side, you’ve got those who think the Asian giant is going to keep growing, growing… and growing. Others point out that China is not immune from the rest of the world’s woes – and that it has its own batch of problems to deal with on top. We’re in the bearish camp.”
David Stevenson on A Warning From Warren Buffett’s Top Economic Indicator: “That’s why it’s worth keeping an eye on what Buffett is doing – and on what he’s watching. So today we want to take a look at Buffett’s favourite economic indicator. It’s the one that tells him all he needs to know about the US economy. And it’s not looking good…”
Greg Canavan on Using Aussie Dollar Gold to Hedge Against Deflationary Turmoil “So don’t be seduced by the price action. Be wary of the crowd. Stay away from the running, blundering herd. And most of all, be patient. It won’t be long before deflation rears its head again. At which time steel yourself to wade into the market and buy some very undervalued companies.”
Dr. Alex Cowie on why This Could Be A Very Profitable Couple of Months for Small-Cap Mining Stocks: “You just have to look around the market to see that we are back into a market where risk-tolerant investors can make good money on explosive moves. It’s not just gold, silver and oil stocks. One copper explorer has jumped 109% in eight trading days… Put another way, this intersection contains more copper than the result that put Sandfire Resources on the map.”
Why it May Be Too Late for Retailing Slow-Coaches to Get Online
