The boundary between online and bricks-and-mortar retailing is becoming increasingly blurred.
Mothercare (LSE: MTC) reported this morning that 31.8% of its total UK sales were made online during the last three months — a 16% increase on the same period last year.
Interestingly, more than one third of these sales were click-and-collect orders. What’s more, Mothercare said in its interim results in November that online growth was also being driven by “the growth of customers placing online orders in stores”.
These reports suggest that Mothercare’s online sales would be much lower without its stores, but also raise questions about the size and format of store that will be required in the future.
Mothercare’s UK business lost money during the first half of this year, and like-for-like UK sales growth of just 1.1% during the last quarter suggests to me that the jury is still out regarding Mothercare’s UK turnaround.
Trading on 18 times 2016 forecast earnings, Mothercare still looks far too expensive to me.
A better alternative?
Sports Direct International (LSE: SPD) doesn’t look especially cheap, either — but Mike Ashley’s firm has a number of advantages that make it more attractive, in my view.
Sports Direct’s large UK store network boasts proven profitability and strong sales growth. The firm’s retail sales rose by 8.3% during the first half of the current financial year, with an impressive 9.7% operating margin.
Against this backdrop, Sports Direct is investing in online. The firm is currently trialling click-and-collect in 400 UK stores and reported an 11.1% rise in online revenues during the first half — boosting store revenue growth, rather than subsidising poorly performing stores, as I suspect is the case with Mothercare.
In this light, Sports Direct’s 2016 forecast P/E of 16.7 doesn’t look too unreasonable.
A strange change
The final company in this trio of brick and clicks retailers is Supergroup (LSE: SGP). You might expect this youth-oriented brand to do well online, but the internet only accounted for 10.2% of sales over the last 12 months, down from 11% during the previous year.
In part, this seems to be because Supergroup’s store network is still growing strongly: I’d expect online sales to follow, rather than lead store growth, as buyers become more familiar with the firm’s brand and products, and start shopping online, in addition to visiting stores.
Supergroup trades on a 2016 forecast P/E of 13.2, and is at an earlier stage of growth than the other two firms — this may prove to be an opportunity for investors.
