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High-Yield Opportunities In The Online Shopping Boom

The lights above Regent Street have been lit and the shopping festive season has officially started.

While you might not notice it if you’re weaving your way through the throngs with armloads of shopping bags, there is a different feel to the whole affair this year.

Mainly because you don’t need to be weaving your way through the throngs any more. And more and more people are steering clear of the crowds.

You see, the age of online retail is here.

It could have major implications for retailers as they battle for your festive pounds

True, this may seem like yesterday’s news.

I mean, Amazon has been leading the online charge for more than a decade and any supermarket worth its salt has an online offering. But the very fact that online shopping is quietly accepted as the way to go is evidence enough that it has really and truly arrived.

And it could have major implications for UK retailers as they battle for your festive pounds. It also offers opportunities for investors.

You see, according to a report from Cushman & Wakefield, the UK consumer is one of the most plugged-in (and wireless) in the world, with nearly 10% of all retail sales taking place over the internet, second only to tech-loving South Koreans. Consultancy Deloitte estimates that 90% of UK shoppers between the ages of 24 and 35 own smartphones.

Furthermore, the British Retail Consortium (BRC) tells us 18% of non-food purchases were made online in October – the highest the BRC has recorded in the two years it’s compiled the data – and I have little doubt that percentage will rise further as the festive season ramps up.

Meanwhile, John Lewis has just announced its first £100m sales week of the year – the earliest in the calendar it’s happened in the company’s history – thanks in no small part to online revenues jumping 24% to represent nearly a third of all sales.

Don’t resist the revolution, invest in it

Unfortunately, the trend to online retail isn’t going to be helpful to most UK retailers.

Sure, ASOS was ahead of the curve and is reaping the benefits, but online is fast becoming a requirement for doing business rather than a differentiator.

The only real growth driver for UK retailers of late has been their online channels, which have generally been growing between 10% and 15%, while their physical store locations have seen barely any growth.

Even with the recent pick-up in consumer activity, visitor numbers to high streets and shopping centres are down from a year ago.

People are still shopping, just not in the shops.

The growth in online (or lack thereof) is one reason Wm Morrison Supermarkets – which will introduce its Ocado-supported online offering for the first time in January – has been losing market share in the highly competitive supermarket sector.

At the other end of the spectrum, Tesco is investing nearly £500m a year in technology and the company’s Hudl tablet is an attempt to give Amazon a run for its money by putting a Tesco store in every UK shopper’s hand. Who says the space race is over?

Take a step back

The battle for supremacy in the brave new UK retail world will be fierce and I don’t recommend stepping lightly into the fray as an investor (although I’m personally backing Tesco because it has the sheer size to wage a vicious battle).

However, there are ways to invest without being on the front lines.

You see, all of this online shopping requires goods to be stored in warehouses while they wait to be shipped out and about. And investors looking to benefit from this trend could do worse than look at the property companies that own those warehouses.

LondonMetric and SEGRO are two listed real estate investment trusts (REITs), which are property companies that receive tax privileges as long as they agree to pay at least 90% of their taxable income to shareholders.

Both firms have been investing in warehouses (referred to as ‘distribution properties’ in the industry) in recent years.

As they are REITs, these two shares offer investors an attractive income stream and are currently yielding 5.3% and 4.5% respectively.

LondonMetric holds a portfolio of eight warehouses spread from Harlow to Birmingham and up to Nottingham, in addition to retail properties throughout the country and residential properties in London.

Meanwhile, SEGRO owns about £700m-worth of assets at Heathrow among various other UK sites. The company also boasts a number of properties in Europe – mainly around the major population centres in France, Germany and Poland.

Warehouses may not be all that exciting, but I think they could be attractive places to put your money for the next several years as the retail revolution rages on!

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> Nate owns shares in Tesco and SEGRO. The Motley Fool owns shares in Tesco, and has recommended shares in Tesco and Wm Morrison Supermarkets.