Investing amid the changing nature of retail

Who would be a retailer, or invest in retail? Well, the answer to those questions is that lots of people would, and a few might do quite well with it.

However, my guess is that owning shops will not be the money maker that it has been in the past.

Traditionally, retail was an easy-entry industry, one that you could get into and do OK without a lot of money and, perhaps, even less experience.

If you were good at it (think Rod Duke, Sir Stephen Tindall, Sir Michael Hill) you could be better than OK and do really, really well.

But the storm clouds have been rolling up for some years and retail is facing increasing headwinds. The obvious one is e-commerce: we now have global shopping at our fingertips, as well as the mall.

Personally, I always feel a little guilty buying online from Amazon or the likes, as I think of the local shop-keeper who has missed out on the sale.

However, the quality, price and the array of options is usually just too good. And so, sorry to say, everything from a recent dinner jacket purchase to my latest pair of climbing boots turns up on a courier from the US or UK.

The other thing against retail is that many people now want experiences rather than things.

This is most prevalent amongst young people who would rather an Adele concert than a substantial addition to the wardrobe. Baby boomers as well may also choose a three-month cycling trip through Khuzestan and make do without that new set of outdoor furniture.

In the US and elsewhere, there have been some big retailers that have closed shops: Macys, Sears, RadioShack have each closed over 100 outlets. At the same time, reports show that US malls are struggling (one prediction is that 400 of the US’s 1100 enclosed malls will close in the coming years). Some New Zealand retailers have failed (e.g. Banks shoes), others have struggled (e.g. Kirkcaldie and Stains), and some centres seem to have quite high vacancies.

No-one predicts the end of shops or, indeed, the end of malls, but it will get more and more difficult for some.

Investors need to be very selective about what investments they buy. For example, Michael Hill may be fairly safe from internet shopping because many people will want to touch a piece of jewellery before they buy. In any event, buying jewellery is often a special event – something to go out and make a fuss about rather than have it arrive on the doorstep in a bubble wrap envelope.

Although I have a little retail in my investment portfolio, I am wary and very selective. There will be fewer shops and more e-commerce and only the smart will thrive. I think this is an area that demands caution and a reminder of that old investment saying: if in doubt, stay out.

Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.

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