Post Covid, shoppers have flooded back into physical stores. And interest rates have been rising. And yet, it seems, a bright future beckons for online retailers.
Despite headwinds for the online sector since the Covid-driven rush subsided, there’s still plenty pointing to better times ahead.
According to a new report from Australia Post, 82 per cent, or 9.4 million, Australian households shopped online in 2022, spending $63.8 billion, accounting for almost a fifth of all retail sales.
Read Next
For the latest retail news, sign up here for free Stockhead daily newsletters
Aussies are also shopping online more often, with 37 per cent doing so fortnightly compared to 20 per cent pre-Covid.
A million more households are now shopping online compared with 2019.
“Australians’ love affair with online shopping has not waned, even with restrictions removed,” said Australia Post executive, Gary Starr.
“The growth trend in online was steady prior to Covid but spiked during restrictions, now it’s showing a return to normal trend growth.
“By 2033, we expect around one in three retail dollars will be spent online,” Starr said.
Short-term challenges? Sure
In the US, the growth story is pretty similar.
According to Morgan Stanley, US e-commerce could reach 31 per cent of sales by 2026, up from 23 per cent now, as brick-and-mortar stores close and consumers prioritise convenience.
There are factors that point to continual growth for e-commerce, including better digital payments and fulfilment capabilities that allow faster deliveries.
But with Australian consumers piling back to physical stores, the question on every investor’s mind is whether the Covid bump in online retail stocks was a one-off phenomenon.
Co-founder and newly appointed CEO of Redbubble (ASX:RBL), Martin Hosking concedes there are short-term challenges facing online retailers.
“It’s not only the macro environment in terms of the interest rates and where the consumers are,” Hosking told Stockhead.
“It’s also that as we’ve moved out of Covid, the consumer dollars have gone flying from online into more traditional retail.”
Hosking doubts anybody has a really good idea about where the consumer is going to be over the next year or so.
“I’m not going to be brave enough to make a prediction. I think all tech companies and all consumer retail companies need to be cautious in this environment,” he said.
Jumping on artificial intelligence
Hosking is not only the co-founder of Redbubble, he is also a former CEO of the company and the biggest shareholder, at 14.5 per cent.
He replaced Michael Ilczynski, who was headhunted from Seek a couple of years ago and has just resigned to pursue an “opportunity in a non-competitive space”.
Hosking said a lot had changed since he resigned as the CEO of Redbubble in 2018.
“AI (artificial intelligence) wasn’t a thing back then, the social media landscape has changed and Google has changed. So I’m treating this very much as a new role, and I think I’ve got an awful lot to learn,” he said.
In the last half, Redbubble reported an EBITDA (earnings before interest, taxes, depreciation and amortisation) loss of $23 million, compared to a profit of $8 million in 1H FY22.
But it’s not all doom and gloom, as the company reported NPAT (net profit after tax) of $30 million, compared to a loss of $1 million in 1H FY22.
Its marketplace revenue (MPR) was $289.3 million, in line with last year.
Apparel sales in the US remained relatively resilient through the company’s Teepublic marketplace, but this was offset by a weaker performance in Redbubble’s core categories such as Wall Art and Homewares.
The half also saw Redbubble beginning the testing of AI technology to understand how it could enhance the marketplace’s content quality.
“We see AI as a really good tool for both marketplaces (Redbubble and Teepublic), which helps us to understand our content better,” explained Hosking.
“The artists do use AI to help with their creation of art, and that helps us to understand what the artists are doing and rank results for our customers. So that’s really what we’re exploring.”
MORE FROM STOCKHEAD: Expert sees value in resources | ETFs offering golden opportunities | Aussie investors abandon ASX
Time for another look at Redbubble?
After reducing its workforce by 14 per cent amid other cost cutting measures, Redbubble says it’s seeking to return the company to cashflow positivity by the end of 2023.
“Our unit economics are strong, and so it’s really a question of making sure that our cost base is aligned with our revenue,” said Hosking.
The company, as a group, is by far and away the largest marketplace for independent artists, but it does have competitors such as US-based Zazzle and a German-founded company called Spreadshirt.
At the peak of Covid in 2021, the RBL share price reached as high as $7.04 (it’s now 45 cents) but Hosking is adamant that he’s not in the business of predicting future share prices.
“It’s a game which I think I will only ever lose, so the only thing I can control is our business performance economics,” he said.
“The advantage we have as a company is we’ve got a business that operates and covers different segments.”
He added that Redbubble could be a good investment right now for investors who are seeking a company with good unit economics and a strong management.
“We’ve also got a dominant position in a global marketplace, and I believe it’s a good time to really have a serious look at us as an investment opportunity.”
Other pure online retailers on the ASX
KOGAN (ASX:KGN)
Kogan sells leading brands on its website across a wide range of categories including consumer electronics, appliances, homewares, hardware, and toys.
The company also owns and operates a suite of exclusive private label brands.
The marketplace has recently been endorsed by Morningstar, which believes that Kogan’s share price of less than $4 right now ($3.79 on Thursday morning) is highly undervalued and should be closer to $10.70.
Morningstar says Kogan has sold its excess inventories and may be better positioned than some to stave off competition from larger competitors like Amazon, thanks to its recent expansion to deliver bulky goods to Brisbane, Perth, and Adelaide.
BOOKTOPIA (ASX:BKG)
Booktopia is an online-only book retailer that sells physical books, ebooks, magazines, stationery and gift certificates and services through its 27,500sq m headquarters and distribution centres in Sydney.
The company has recently implemented several initiatives that are expected to deliver about $12-15 million of annualised improvements to its earnings, to be primarily realised in FY24 and beyond.
The company’s ticker was recently removed from the S&P ASX All Ordinaries as part of the quarterly rebalancing.
SEEK (ASX:SEK)
Seek is a market leader in online employment marketplaces operating across Australia, Asia Pacific and Latin America.
In the last half, Seek reported a 21 per cent increase in revenue to $626.7 million, with reported NPAT of $135 million.
For the full year, Seek has guided the market to a revenue of around $1.26 billion and NPAT of approximately $250 million.
It’s shares were trading at $23.64 on Thursday morning.
TEMPLE & WEBSTER (ASX:TPW)
Temple & Webster is Australia’s leading online retailer of furniture and homewares, with a drop-shipping model, whereby products are sent directly to customers by suppliers.
The company has been targeting the Millennials segment, which it said is becoming the largest generation and the first digital natives to enter core furniture and homewares buying years.
The company also says it’s set to benefit from work-from-home culture, which is now embedded for many Australians, creating a new market within the $18 billion-plus furniture and homewares industry.
On Thursday morning, its share price was $3.45, up 20 cents over the past day.
Visit Stockhead, where ASX small caps are big deals
CETTIRE (ASX:CTT)
Cettire is a global online retailer, offering a large selection of in-demand personal luxury goods via its website, cettire.com.
The company has access to an extensive catalogue of more than 2,500 luxury brands and more than 400,000 products of clothing, shoes, bags, and accessories.
Cettire has recently expanded into new geographies including China and has extended to new adjacent verticals including the beauty category.
The company has also recently announced near-term investment priorities, which include customer acquisition, technology investment, and building organisational capability.
Its shares were up nearly 3 per cent on Thursday morning, to $1.38.
This content first appeared on stockhead.com.au
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
SUBSCRIBE
Get the latest Stockhead news delivered free to your inbox. Click here
