- COVID-19 has rapidly accelerated the already evident shift to digital channels. Businesses are getting inclined to invest in long-term capacity development to meet the growing demand from consumers.
- ASX e-commerce businesses have also experienced strong tailwinds from the current environment, and shares of e-retailers have hit lifetime highs over the recent months.
- com and Temple & Webster have been the large gainers of the current shift to digital channels, while omni-channel retailers like Adairs have also found a strong footing in this environment.
This pandemic has definitely accelerated several medium to long term themes, including shift to digital and e-commerce. But it is much larger than just e-commerce. In a matter of weeks, the pandemic has changed the way we live.
Those who were reluctant to embrace the shift to digital earlier had to board the ship to online world. People have started to work from home, and companies are taking remote working culture seriously to optimise costs.
Businesses that empower digital infrastructure have also emerged as a winner in this environment and tapped investors to fulfil their investment needs. Such businesses may have also cut their time to reach break-even, as business conditions have dramatically improved.
Companies that already had digital infrastructure to complement the burgeoning change have capitalised on the arising opportunities. Elsewhere strong enterprises have used this crisis as a means to add more revenue streams through acquisitions of alike businesses, which might have been sold indiscriminately in the markets.
Large businesses have also accelerated their capital allocation in digital investments that would improve margins over the future, including supermarkets in Australia. There is a greater need for technological advancements in supply chain and distribution capabilities.
Globally, this crisis has disturbed the business environment, causing shutdowns, freeze to cashflows, and bankruptcies. But the low cost, capital light, tech-driven and profitable online businesses have found even more solid footing at the backdrop of COVID-19.
Traditional brick and mortar based businesses now have to come online and embrace the shift to digital. This crisis has also made number of physical stores redundant, as more and more customers are preferring online shopping. More store closures could be expected over the course of future.
Stores that would continue to operate may see further adoption of technologies to improve the cost base of the business. Companies continue to explore cost-efficient, tech-enabled, including omni channel retailing.
At the same time, service-driven businesses are also reinventing their business models, as they are delivering services remotely. Online consultation in many services has become the new normal in many businesses, including professional services.
This rapid shift to digital channels has designated network as critical infrastructure, and cyberspace is the new place of action. Regulators and policymakers now have to stress further into the digital infrastructure to promote appropriate laws.
Investment bankers must be chasing the online businesses and presenting them with a plethora of investible opportunities amid this crisis. With online businesses also tapping investors for further capital, it is evident that there are a lot of spaces that need to be exploited by these companies in terms of inorganic growth.
Few E-commerce Winners listed on ASX
Kogan.com Limited (ASX:KGN)
Kogan.com has gained immense traction from investors since March lows, and its shares moved up significantly in the same period. The company has been breaking records, increasing sales, and onboarding new sellers as well as customers.
KGN has acquired an Australian furniture retailer to complement the product offerings in its e-commerce channels. Recently, the company also raised further capital to deploy on compelling opportunities.
In May, the company continued to grow its active customer base, crossing 2 million with gains for the month clocking 126k. During 4Q to May, its gross sales grew over 100% and gross profit went up by more than 130%.
In the same period, its adjusted EBITDA was up over 200% and cash at the end of month was $58.6 million. In the financial year to May, Kogan.com grew its adjusted EBITDA by over 50%.
On 3 July 2020, KGN last traded at $15.610, down by 0.763% from the previous close.
Temple & Webster Group Ltd (ASX:TPW)
Temple & Webster is an online furniture and homeware retailer in Australia. It has recently completed equity capital raising to provide additional flexibility to the balance sheet. The company has agreed to invest in a start-up, which delivers AI-based interior design tools.
Temple & Webster has also signed an agreement with the start-up to incorporate these services in Australia in a market-first move. Management continues to believe in the structural shift in the Australian furniture and homeware market from offline to online, which they perceive to be under penetrated by global standards.
In June, its sales continued the momentum seen in recent months, and the company expects to report FY20 EBITDA of over $8 million. In the financial year to May 2020, its revenue was up 68% to $151.7 million compared to the previous corresponding period.
In the same period, EBITDA of the business was up 668% compared to the same period last year at $7.1 million, and its active customer base increased to around 440k. At the end of this month, the company would report full-year results.
On 3 July 2020, TPW last traded at $7.120, down by 4.301% from the previous close.
Adairs Limited (ASX:ADH)
Adairs’ Non-Executive Chairman, Mr Michael Butler, has presented his intentions not to seek re-election at the upcoming Annual General Meeting. He may remain with the company until the Annual General Meeting or leave earlier if a successor is identified.
Over the years, Mr Butler has overseen listing of the company, acquisition of Mocka, and successful transition of CEOs, along with handling business and challenges through the pandemic. Adairs believes that he leaves the company in a strong position.
During mid-June, the company provided a trading update and sales guidance for FY20. In 2H period to 14 June, Adairs’ total sales increased 27.4%, constituting 5.3% growth in stores and 92.6% growth in online sales.
In the FY period to 14 June, Adairs’ total sales increased 15.7%, comprising 3.5% growth in stores and 64% growth in online sales. Mocka, its online business, delivered sales growth of 52.1% in 2H period to 14 June (all sales represent like for like sales).
In FY20, the company is expecting to deliver total sales between $385 million and $390 million. Management has acknowledged the level of uncertainty over the medium term and believe that business is well positioned to respond to the opportunities and risks.
On 3 July 2020, ADH last traded at $2.340, down by 4.49% from the previous close.
(Note: All currency in AUD unless specified otherwise)