One Reason Why I Would Buy J Sainsbury plc Today

Today I am looking at why I believe online custom provides exciting growth opportunities for J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US).

Internet presence promises rich returns

Sainsbury’s latest trading update issued last week made chastening reading for the company and its shareholders. Extensive marketing and product development of its in-house brands — including its Taste the Difference premium range — combined with heavy investment in its website and portfolio of convenience outlets has helped it to stave off the march of the budget retailers in recent years.

But the firm’s latest numbers indicated that Aldi and Lidl are finally starting to attract shoppers away from its doors. Although Sainsbury'stotal sales rose 1% in the 12 weeks to June 7, like-for-like turnover excluding fuel actually dipped 1.1% during the period. The impact of massive discounting across the store to compete with discount chains is also eating heavily into margins.

Still, investors should be encouraged by the terrific progress that the Sainsbury’s is making online, and the grocer noted in its latest update that online transactions jumped 10% during the period. Sales via the company’s internet and convenience store channels have more than doubled since 2009, Sainsbury’s noted, and now account for 15% of group revenues.

The company completed the refreshment of its website and mobile platforms during the spring to keep virtual customers marching through the door. And in recent days it also announced plans to boost customer service by allowing customers to collect their orders from seven London Underground stations.

Sainsbury’s is also trialling the sale of its TU fashion label to customers in the Midlands in coming months, with a view to rolling out the initiative nationwide next year. The supermarket saw clothing sales rise at double-digit rates during the first quarter and will be hoping to replicate such performance online.

Sainsbury’s will be relying heavily on its online business to keep custom ticking higher, areas in which the country’s major discount chains are yet to enter.

But the firm has proven that it has both the know-how and clout to keep internet sales rolling in the right direction, and while investors should be aware of the increased fragmentation of the British grocery space, I believe that Sainsbury’s should continue to take business from its mid-tier rivals such as Tesco and Morrisons both online and in store and get revenues rolling again.

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Royston does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.