Like most other industries, retail and logistics sector is currently confronting immense changes, and like all changes, this brings both risk and opportunites. This is ideally in the form of new technology, new customer expectations, new market entrants, and new business models. With the growth of businesses, there are multiple ways in which these two sectors could develop and eventually meet these challenges, some evolutionary, others revolutionary. In this article, we would look at the reasons to eye the retail and logistics companies in Australia, from an investing perspective and towards the end, we would look at the stock performance of some of the publicly listed companies on the Australian Securities Exchange. But first and foremost, let us acquaint ourselves to the retail and logistics industry of Australia:
The Retail Industry
The retail industry sells consumer goods or services to consumers via various distribution channels to earn a profit. The retail industry differs from other sectors in one important way: they do not create a product. Rather, retailers buy products from manufacturers and sell them to consumers. The retail industry operates via physical stores and online portals. In the recent times, the Australian retail sector has witnessed a growth amid the low increase in wages and rising household debt. In September 2018, the Y-o-Y retails sales were up by almost 3.7% and the CAGR for the sector is expected to be up 4.6% by 2024. With the increase in online shopping, by the end of 2019, Australia’s virtual businesses are likely to witness a 15.1% growth in revenue.
The Logistics Industry
The much-needed management for the flow of products and services from the point of origin to the point of consumption sums up the logistics industry. It is the medium that aids in fulfilling the requirements of customers or corporations, and is inclusive of the integration of information flow, handling of materials, production and packaging, inventory, warehousing and transportation and even security. According to the Australian Industry Standards, the transport and Logistics industry in Australia had an estimated annual revenue of approximately $96.65 billion which increased the Australian economy in 2017 by $39.95 billion.
Why consider the Australian retail companies?
According to the Australian Retailers Association, Australia’s retail sector is worth $310 billion and employs over 1.2 million people. This is a direct indication that retail is a crucial aspect of the country’s growth and given that Australia is regarded among one of the most urbanised societies of the world, retail has a long way to go in the region. Today’s retailers operate on a global scale wherein the products are sourced from across the world and transactions pertaining to them, along with the movements of goods, are equally international. According to industry experts, Victoria’s retail industry alone is worth over A$73 billion.
It can be safely said that the retail sector in Australia is demanding and a major chunk of this credit is with the ecommerce industry, which would continue its growth trajectory in the days to come, with a projected market size of approximately A$35.2 billion by 2021. In the current times, the Australian retail is a lucrative option for both businesses and investors, given the below mentioned reasons:
- Australian retailers are focusing on optimising costs and looking to build volume in a tough operating environment.
- There is a positive rise of fundamental strategic shifts in the sector, and the adaptability metrics depicted by the Aussie retailers has been high.
- Australian retailers bear potential to think beyond basic services and pry on ways to make the physical component of contemporary shopping an event that consumers will look forward to and talk about.
- In the tech-savvy country, with virtual giants like Amazon and com already part of the ballgame, online sales are a major attraction for Australians, and the next challenge which retailers are likely to surpass, would be the ways to integrate the benefits of online channels into a successful omni-channel strategy.
- The intriguing outlook of the industry gets cemented as more and more retailers create demand by changing their product and instilling some new additions to their product.
Why consider the Australian logistics companies?
The efficiency of Australia’s Logistics industry is vital to the nation’s productivity and wellbeing. Every industry in Australia depends on logistics and transport to some degree, and the low cost transport and logistics enable the Australian exporters to profitably reach key markets, while the manufacturers keep a cost-competitive edge via cheap imports and enables firms within Australia to compete over a larger area bringing lower prices and greater choice to consumers. Industry experts project that the Australian logistics and warehousing market would most likely reach $187 billion by 2021, driven by the evolution in the logistics industry in recent years, in terms of integration and digitalisation of the supply chains. In the current times, the Australian logistics industry is a lucrative option for both businesses and investors, given the below mentioned reasons:
- There is better productivity and efficiency creating sustainable modes of transporting goods from one place to another.
- There is growth in the number of foreign companies and the increasing value of exports and imports.
- The demand for cold chain logistics has grown with the rising demand for Australia agricultural products from other countries leading to increasing agricultural exports.
- The government is taking keen interest in the sector and has allocated $70 billion for transport infrastructure from 2014 to 2021, and $75 billion for funding road and rail infrastructure from 2018 to 2027.
- growth of third-party logistics (3PL) service providers is rampant in the country, along with breakthrough concepts like AI and ecommerce making its mark.
The Platypus Asset Management Example
Fund manager Platypus Asset Management believes that accommodative monetary policy and betterment of the housing market would pace up consumer confidence and allow Australians to spend more. This is the strategy wherein the company has been hopeful of a supportive environment and has tapped domestic cyclical stocks, which includes retail and logistics companies.
Let us now look at few stocks pertaining to the retail and logistics industry, and understand their price performance on the ASX, as on 9 September 2019, at 3:36 PM AEST: The stocks are Woolworths Group Limited (ASX: WOW), Wesfarmers Limited (ASX: WES), Kogan.com Limited (ASX: KGN), Qube Holdings Limited (ASX: QUB) , Orcoda Limited (ASX: ODA) and WiseTech Global (ASX: WTC).
With the market and investors awaiting the AGM season soon, it would be interesting to witness the growth and transition that the retail and logistics industry unfolds in Australia. We encourage you to stay tuned for more insights about the Australian economy and its sectoral space.
This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.
As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.