Aussie retailers fail to invest online

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Dividends more important that capex.

Goldman Sachs has released a report that reveals that a lack of capital expenditure by Australian retailers has hindered their ability to capitalise on internet sales. 

Aussie retailers fail to invest online

The report, authored by analyst Phil Kimber, said that the likes of Myer and David Jones have been so fixated on providing generous dividends to shareholders that they have failed to invest capital in the technology required to take advantage of the online sales boom.

The report noted that between 2005 and 2012, US and UK retailers invested in excess of 50 percent of available cash in capital expenditure. Australian retailers, by comparison, invested 35 percent of available cash.
 
Foreign retailers tend to make ten percent of sales online,  whereas online sales make up a mere one percent of all sales at David Jones and Myer.
 
The chronic underinvestment is starting to hit the retailer's bottom line. Myer, with 67 stores, barely increased sales between 2011 and 2012, while David Jones suffered a real decline in sales for the same period, from approximately $1.9 billion to $1.8 billion.
 
Neither company provided much detail on technology investments in their annual reports (Myer - pdf, (David Jones - pdf), save for brief mentions of the promise of omnichannel retail and a David Jones investment in point of sale technology, apps and a loyalty program. Omnichannel retail allows the customer to approach it from different channels in a homogenous manner.

Myer's capex has dropped from a high of 4.8 percent of sales in 2008 to 1.9 percent in 2012. David Jones spent five percent of sales on capex investments in 2009, but this fell back to 3.9 percent in 2012.

The Goldman report recommended Australian retailers tackle the direct targeting of domestic consumers by foreign brands. 

“We believe Australian department stores will need to increase their investment in the online space,” it concluded, by lowering dividend payments and boosting capital expenditure.

The report cites a specific example Australian retailers could follow. British retailers Debenhams and Marks & Spencer have boosted their online sales over the past five years from levels near those current experienced by Australian retailers to nearly ten percent of all sales.

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