Kathmandu, Hallenstein may be able to withstand Amazon

Kathmandu, Hallenstein may be able to withstand Amazon in Australia: analysts

By Rebecca Howard

Sept. 29 (BusinessDesk) - Kathmandu Holding and Hallenstein Glasson Holdings appear to be weathering a global move to online shopping and may be able to withstand the pressure as Amazon pushes into Australia as early as next month, analysts say.

In early August, Amazon announced its first Australian fulfilment centre in Dandenong South and the appointment of a country manager. Amazon declined to offer any further detail today. However, while the online giant hasn't actually specified an Australian launch date "the assumption is as soon as October," said Nick Dravitzki, equity analyst at Devon Funds Management.

Once they are up and running "you will have a significant inventory that is much cheaper or even free to ship domestically and then will also be cheaper to ship to New Zealand," he said. Amazon currently ships products to New Zealand and Australian customers from the US.

Retailers are already under pressure from a growing online channel with a raft of competitors who frequently offer cheaper products, avoid the overhead of a high street location, and are accused of skirting customs duties that traditional vendors face.

According to the latest online retail sales data compiled by Bank of New Zealand, total online retail shopping rose 8 percent on year in July, versus a 2.5 percent increase for local stores. It estimated annual online spending is about $4 billion or 7.7 percent of total retail sales.

Against that backdrop, retailers have sought to position themselves both online and with foot traffic by investing in technology and in refurbishments.

Hallenstein Glasson, the clothing retailer, this week reported a 26 percent gain in net profit for the 2017 year as online sales grew 44 percent in the year, much faster than brick and mortar stores, and now account for 9 percent of total turnover. Chief executive Mark Goddard said the company will keep investing in technology and resources in the area to maintain that pace of growth.

Outdoor equipment chain Kathmandu this week lifted annual profit 14 percent in 2017, posting a 16 percent increase in online sales compared to same-store sales gains of 6.9 percent in Australia and 3.6 percent in New Zealand at its physical outlets. Online sales now account 7.5 percent of all Kathmandu's sales.

Hallenstein Glasson shares have climbed 6.3 percent since last Friday's close at $3.35 percent after this week's result while Kathmandu is up 11 percent at $2.36.

"Investors may be thinking they have been exposed to internet-based selling for quite some time, but their earnings have managed to hold up. Investors don't seem too concerned about the potential clouds on the horizon from the direct selling model of Amazon," said Hamilton Hindin Greene investment advisor James Smalley.

He noted the stocks are not priced for growth but do offer sustainable yield, which is attractive in a low-interest rate environment. On Thursday, the Reserve Bank kept interest rates at a record low 1.75 percent and continued to indicate hikes were not on the immediate horizon.

Dravitzki said that Kathmandu may be in a slightly better position against Amazon than Hallenstein Glasson because it owns and sources its own brand while Hallenstein's is in fashion apparel "which is ultra-competitive". Others in the rag trade have not fared as well. Top Retail, which operates New Zealand's two Topshop and Topman branded stores, was tipped into receivership on Sept. 7 due to the prospect of mounting losses, and children's wear chain Pumpkin Patch was a high-profile casualty last year.

Kathmandu already sells through a number of platforms and Amazon will be another sales channel for them in Australia, said Dravitzki. However, one risk factor is what other brands will be available, he said.

In a bid to attract and retain foot traffic Kathmandu has also focused on optimising space allocation, improving customer conversion rates in-store, visual merchandising and product presentation as well as investing in relocations and refurbishments.

Hallenstein Glasson, meanwhile, said it is continuing to invest in stores with refurbishments planned for both Hallenstein Brothers and Glassons in Queensgate shopping centre in Wellington this season and two new stores in Australia.

Improving the in-store experience is one more tool in the tool-kit, said Dravitzki.

(BusinessDesk)

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