Aussie retail group prepares for Amazon invasion
Key statistics: ASX: SDG
Closing share price 08.03.17: $10.360 52-week high: $11.190 52-week low: $1.350 Most recent dividend: 21.5c Annual dividend yield: 4.15% Franking: 100%
Super Retail Group
Super Retail Group started out in life as Super Cheap Auto. The name was changed to reflect the growing diversity of the business as a retail group.
The stable of businesses now also includes BCF (Boating Camping Fishing), Rays (Outdoors), Amart Sport, and Rebel. The auto segment now accounts for about 38% of sales, as does Sports with Leisure accounting for 24%.
Bricks and mortar retailers have faced impending doom for the past 20 years as the threat of online trading has grown. The threat is real and many companies have suffered, but others have continued to thrive. The latest element of that threat is the decision by Amazon to launch a dedicated Australian business. Amazon is a behemoth who has completely transformed retailing in the USA and is likely to do so here.
Super Retail Group are somewhat insulated initially as Amazon is likely to be less of a force in the product categories they cover. That said, footwear and clothing are two areas where they will be affected and Amazon may also expand into other categories down the track.
To counter this threat, Super Retail is working to improve its own online business as well as strengthening its differentiating factors such as its focus on distinct product groups, relationships with big brands and improving supply chain efficiency.
Competing in the online space is not just a matter of building an ecommerce website. Nielsen Omnibus research shows that Australian online retail sites convert 10% of shoppers into sales, whereas Amazon's US site converts 49% of Australian shoppers. Australian retailers have a lot to learn if they want to go head to head with Amazon in online retailing.
The first half result for 2017, released in February, were largely positive for Super Retail. Normalised net profit after tax increased by 26% with all divisions performing well.
This growth has continued into the second half with a strong start to the calendar year. Analysts are generally optimistic about earnings growth prospects with earnings per share growth of about 15%pa forecast for the next three years. Super Retail aims to be one of the five largest Australasian retailers.
This will give it the scale and efficiency to be able to compete with the likes of Amazon who is rumoured to be planning to undercut Australian competitors by up to 30%.
Other big players like Decathlon are also entering Australia. With a strong balance sheet, good cash flow and a suite of profitable businesses, Super Retail may well have what it takes to weather the storm and thrive.
Data accurate as at March 7, 2017.