After the challenges of COVID-19 in 2020 caused a tough year for ASX retail shares, what does 2021 hold for the fragmented industry?
The post What does 2021 hold for ASX retail shares? appeared first on The Motley Fool Australia. –
2020 was a tough year for the retail sector and many ASX retail shares. Shops were shuttered globally in the effort to fight COVID-19, putting a major dampener on sales. Retail sales in Australia fell more than 17% in April, the greatest fall on record.
While spending was down in the June quarter, the September quarter made up for it with sales rebounding above pre-COVID levels. Pent up demand was unleashed as restrictions eased, with retailers seeing a surge in volumes. Positive momentum continued into the December quarter, with Deloitte predicting growth of 2.6% in retail volumes over 2020.
Still, spending was uneven. Clothing, cafes, and department stores lagged, while spending on food and household goods has been above pre-COVID levels. With physical stores closed, consumers in lockdown turned to online for their purchasing requirements.
This accelerated a trend which has been growing swiftly over the past few years. Rapid growth in internet penetration and increasing acceptance of online shopping as a feasible and safe alternative to in-store shopping has seen digital commerce boom.
So as we head into 2021, what can we expect from ASX retail shares? This depends on the sector they operate in and the strength of their online presence.
Household goods are expected to continue to perform well as consumers spend more time living and working at home. Those peddling computers and electronics should continue to benefit from increased demand. Retailers with a strong online presence will be best placed to take advantage of the shift to online that accelerated last year.
Kogan saw gross sales rise by a record 39.3% in FY20 to reach $68.9 million. The company has reported strong performance in the first few months of FY21, with sales expected to have peaked over the Christmas period. Kogan’s impressive 2020 sales performance led to a 155% increase in the company’s share price over 2020, with Kogan entering the S&P/ASX 200 Index (ASX: XJO) in December.
Kogan is a clear beneficiary of the move to online shopping. In an ASX announcement on 17 August 2020, founder Ruslan Kogan said:
There is a retail revolution taking place as more and more shoppers learn about the benefits of eCommerce…once someone discovers the benefits of online shopping, I struggle to see why they would ever go back to the old way of doing things. After almost 15 years of preparation, the revolution occurring in retail represents a significant opportunity for Kogan.com.
Kogan is not the only beneficiary of this shift. Temple & Webster reported a 74% increase in full year revenue in FY20.
Australia’s largest eCommerce company in the furniture and homewares space, Temple & Webster saw active customer numbers increase 77% in FY20 to almost half a million. The company is growing its market share even as its brick-and-mortar competitors take online more seriously.
Temple & Webster highlighted that it is benefitting from the increasing advantages of scale as it gets larger. In the company’s latest AGM address, the CEO commented, “the bigger we get, the better and stronger our customer propositions becomes, which is a virtuous cycle.”
Another household goods retailer with strong momentum coming in 2021 is Adairs Ltd (ASX: ADH). Adairs operates both online and through physical stores. When physical stores shut in 2020, Adairs saw a significant increase in online sales, a trend which has continued. In the first half of FY21 to December, online sales were up 99.7% on the prior corresponding period. Online sales represented 39% of total sales versus 20% in the same period of the prior year.
In a trading update on 8 December, CEO and managing director Mark Ronan said, “it is now clear our first half FY21 result will be outstanding and builds on the excellent result in FY20…these gains extend across all aspects of our business with Adairs achieving strong growth through our integrated omni-channel model.”
Adairs has forecast group sales of $235 million–$245 million for the first half of FY21, well above the $179 million achieved in the prior corresponding period.
Electronics and beauty
JB Hi Fi Limited (ASX: JBH) also had a stellar 2020. The electronics retailer recorded a strong first quarter for FY21 with total sales growth of 27.3%, compared to growth of 4.7% in the first quarter of FY20. This growth was achieved despite store closures in Victoria with the online business continuing to scale. Online growth combined with continued in-store sales momentum has resulted in a strong start to FY21.
Newcomer Adore Beauty Group Ltd (ASX: ABY) debuted on the ASX in late 2020 and is also reporting strong momentum. The pureplay online beauty and skincare retailer reported better than expected November promotional sales.
Additionally, the extension of the COVD-19 lockdown in Victoria delivered stronger sales for the company throughout the period. As a result, Adore Beauty upgraded its first half FY21 forecast revenue to approximately $95.2 million, 7% above the prospectus forecast.
CEO Tennealle O’Shannessy said, “we are pleased to report strong sales ahead of our prospectus forecasts. The business has continued to scale, deliver content and meet the needs of our customers at a time when they need it most.”
ASX retail shares in 2021
There is no doubt Australian retailers will be hoping for an easier ride in 2021 following the disruptions of 2020. As we have seen, changes in the way we shop and what we shop for means some are in a stronger position than others. This has resulted in the retail sector fragmenting, with some ASX retail shares expected to perform strongly in 2021 while others may have a bumpy road ahead.
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Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends ADAIRS FPO. The Motley Fool Australia has recommended ADAIRS FPO, Kogan.com ltd, and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.