If you look at this chart from the Reserve Bank of Australia, you can see the the Australian retail market looks like the bony back plates of a stegosaurus… Jaggedly climbing up and then dropping down all the way along the line…
The growth in the dollar value of Aussie spending has halved. And based on the decrease in the volume of sales, no matter how hard K-Mart tries to flog $5 t-shirts, we aren’t buying as much stuff as before.
Take a look at the train-wreck performance of some Aussie retailers…
The chart above shows how these retail stocks have fallen up to 56.85% since 18 December 2009:
If you bought these retail stocks at the start of last year and you’re still holding them, we admire your grit. It takes a strong stomach to watch your money disappear.
When you combine the negative return of retail shares with the shrinking sales growth of Australia’s retail industry, it’s enough to make you want to ditch the retail sector all together.
But regardless of whether the Australian retail market is just going through a rough patch, or taking its last gasps, there are still ways for you to collect gains from this sector.
You see, while it seems like you’d have to be mad to invest in Aussie retailers right now, the retail sector is turning a corner. Not here. But overseas. And surprisingly, it’s a rebound in US retailing that could boost your portfolio.
Retail sales in the US rose 0.8% for the month of March data shows. This comes after a 1% gain in February.
The sales growth isn’t the same as at the start of the last decade. But the last two months could be a sign that retail in the US is an investment opportunity.
As Kris wrote in Money Morning last week on Wednesday, the retail stores he visited in the US were chock full of customers. Of course, many of the items were heavily discounted. But still, at least the foot traffic is there.
And ASX-listed retail company Westfield [ASX: WDC] may be one of the first companies to cash in on this turnaround in US retail sales. And that could spell gains for you.
This week, the company announced it sold eight second-tier shopping centres, or ‘malls’ as they’re known in the US. A second-tier mall is simply a major mall in a suburban area. It’s the main offering for shopping in that region, without major competition.
Anyway, the recent sales netted Westfield a cool $1.154 billion. Taking the share price 3.5% higher in the process. But Westfield hasn’t sold out completely. It has retained a 10% interest in the malls. So if the market improves further, Westfield will still get some of the gains. You could say Westfield has hedged its bets… that’s sensible.
These sales come after Westfield sold a 45% stake in another group of malls back in February. Pocketing $2.2 billion.
By waiting to sell these properties, Westfield has taken advantage of a rebound in commercial property prices in America. In fact, the company achieved ‘book value’ for all properties, meaning the price paid was what the valuation was on the company’s books.
So, now the company has offloaded a few properties and scored some extra cash along the way. What’s next?
Firstly, some of the cash will go towards repaying the company’s $14 billion debt. And shareholders will score a special 2-cent distribution.
But most of the cash will underpin Westfield’s future plans. And that plan is to take advantage of a stronger retail market in the US.
‘The proceeds from the transactions will initially pay down corporate debt and then be redeployed in higher-return redevelopment opportunities in the US, including the World Trade Centre,’ said Peter Lowry, CEO of Westfield.
The investments have already begun. Even before the retail sales figures in the US showed signs of a rebound, Westfield had already committed $612.5 million in a joint venture redevelopment of the retail part of New York’s World Trade Centre.
Already Westfield nets $994 million in rental income from its 55 American malls. Yet, the rental projection for the new shopping destination at the World Trade Centre isn’t available. You can expect that figure will be higher once these new centres are operational.
Right now, the Aussie retail sector isn’t profitable. Maybe that will change.
However, if Westfield has read the US market right, chances are it will be one of the first companies to benefit from a return to consumer spending.
And since it’s an Aussie company, listed on the ASX, that means potential gains for you.
If you’re chasing a retail investment, Westfield might be worth adding to your portfolio.
Shae Smith
Editor, Money Morning
From the Archives…
Small Caps – A Way to Bet on Developing Markets…Without Investing Overseas
2012-04-013 – Kris Sayce
All Transactions to be Conducted in the Presence of a Tax Collector
2012-04-12 – Simon Black
How You Can Use Government Intervention to Profit on the Stock Market
2012-04-11 – Kris Sayce
Australia – The Pacific Pawn in USA Versus China
2012-04-10 – Dr. Alex Cowie
If Ron Paul Were US President…
2012-04-09 – Mark Tier
Westfield – The Aussie Retail Stock That Could Make You Money