The retail sector is considered protective in the event of a stock market crash, as it is focused on stable domestic demand. Investments, especially in retail stocks, are intuitive, spontaneous in nature. Investment ideas are simplified.
Shares of convenience retailers are looking better than others in the current macroeconomic environment.
Retail market trends
- The first trend is unambiguous - the buyers will go online and every year more and more rapidly. No one disputes this trend: e-grocery is growing at a very fast pace. First, it is spurred on by the fact that the consumer has a rather monotonous grocery basket, which he buys almost constantly; automated shopping in this sense is the most convenient consumption model. Stores will become smaller because of customer churn, or they will have other functionality on their premises.
What will it be? The obvious consequence of an increase in the share of distributed grocery delivery to households will be the conversion of store space into dark stores. Obviously, stores will use the dark-store model not only for delivery to households, but also for in-store sample sales and collection of purchases in the dark-store.
- The ready-to-eat delivery market is growing at a great rate - and delivery time is crucial there. Dark kitchens on the premises of chain supermarkets and hypermarkets will become a competitive advantage in the fight for the customer's stomach. The demand for ready-to-eat food will lead to the growth of retailers' own production facilities, including on the retail premises. The advantage of dark-kitchens is their proximity to the consumer and the availability of already-equipped production facilities.
- Among the illustrative examples in the food delivery sector is the growth dynamics of the Estonian company Bolt, which in 2021 attracted $713 million of investment in a new investment round and plans to spend on the development of food delivery services. Prior to that, Bolt closed a record €150 million investment round for itself at the end of 2020.
- The physical store search and in-store navigation will be developed more actively to improve the shopping experience. The development of navigation will make it possible to "manage" the routes of customers.
- An important focus of digitalization in grocery stores will be supply and inventory optimization with AI; confident implementation can have a significant economic impact. There are more and more self-service checkout options in stores.
Gainy notes that young investors are also investing in retail. This also makes the market very unpredictable. After all, new investors are setting unexpected trends.
What is important to consider when investing in retail
The retail sector is beginning to be subjected to what might be called institutional social justice claims. Here are some of them:
- excessive centralization, or more accurately, monopolization of distribution channels;
- detrimental effects on the environment: excessive packaging, disposal of expired goods;
- excessive retail space that occupies public spaces;
- reducing the caloric content of products under the banner of healthy eating, but at the same time increasing the cost and income of selling low-calorie products;
- encouraging overconsumption by retail provokes the over-exploitation of fertile soil, its erosion and degradation of the environment and brings direct harm to health;
- overproduction on the one hand, actively supported by the networks, and on the other hand, a huge number of people are starving or undernourished;
- there is even an accusation that the use of digital tools in retail to optimize supply is not aimed at reducing the price for the customer. But only at enriching shareholders, and that these digital tools in public hands can work just as effectively as in private ones;
- another important aspect is that the data for the operation of digital algorithms is collected from consumers by narrow groups of retailers, while it should belong to society, and everyone involved in the product chain. There are already voices in Australia about nationalizing retail chains - and the slogan under which nationalization is being promoted is: "Food is a human right, not a commodity."
What attracts an investor to retail
It is more convenient for sellers to sell standardized goods with high margins and high average checks online. And customers do not want to waste time buying goods whose characteristics can easily be transmitted "through a screen", such as smartphones or sneakers. In such niches, there is a risk, if not complete, then the overwhelming transition to digital - the remaining categories of goods will continue to be sold offline.
Of course, this is partly since some services, which have become an integral part of retail outlets, simply cannot be transferred online. For example, a visit to a beauty salon is only possible, and the atmosphere of a restaurant will not be replaced by a virtual reality helmet and gloves just yet.
So, pay attention to street retail as well.
What's going on with the street retail market
Now, street retail is retail or office space that is located on the first floors of houses. In such areas you can open a variety of businesses: stores, salons, cafés, gyms, and much more.
Street retail has two varieties. The first is the purchase of premises which already have an operating tenant, and the second is the purchase of vacant property.
The main reason for the popularity of street retail is the change in the way money is saved. For example, deposits in banks are not always profitable against the backdrop of rising inflation.
Speaking of the benefits of such a purchase, let's note that in commerce the payback is predictable. If you buy a highly liquid object in a new building, then in about 12 years you can earn its value.
The owner, as a rule, gets income not only from renting the property. The residual value of a highly liquid object increases substantially. For street retailers, this trend will not stop soon.
Many manufacturers will try to build direct connections with the consumer and give them a better price - retailers will have to respond to this challenge. Most likely, the answer will be that the grocery retailer will start to expand its ecosystem, so that the customer feels additional value from the purchase of the product, introducing bonuses that can be paid for within the ecosystem.