Could ASX Online Retail Stocks Benefit From Inflation?

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It was a celebratory day for ASX online retail stocks, with some of them posting share price gains that generated significant outperformance.

Let’s take a look at the state of play for some of the top names.

The Ltd (ASX: KGN) the stock price climbed 50.16%.

The RedbubbleLtd (ASX: RBL) the stock price ended up 22.75%.

The Cettire Ltd (ASX:CTT) the stock price jumped 23.36%.

The Temple & Webster Group Ltd. (ASX:TPW) ended up 13.50%.

Despite these big gains, they are still heavily in the red for 2022, but things could improve for them individually and as an industry. The company’s quarterly updates were plentiful and fast-paced today.

Why could things be better than expected?

Normally there is a reason for such exuberance in a particular industry.

While only today’s buyers of each of these stocks can truly tell why they were happy to pay a much higher price today than yesterday, there could be several different reasons.

For starters, Kogan’s update for FY22 may have included some promising signs for the industry. Sometimes investors like to take positive signs from a company update and then think it applies to other companies.

Kogan showed that in FY22, gross sales increased by 0.1% compared to FY21. The e-commerce business noted that it returned to positive quarterly adjusted earnings before interest, tax, depreciation and amortization (EBITDA) after a “successful ongoing recalibration of operating costs”.

Inflation is accelerating

For the three months until June 30, 2022, the Australian Bureau of Statistics (ABS) reported that consumer price index (CPI) inflation rose 1.8%.

In the 12 months to June 2022, CPI inflation increased to 6.1%.

The ABS noted that the largest price increases were homeowner purchases of new homes (+5.6%), automotive fuel (+4.2%) and furniture (+7%).

Looking at the broader segment of furniture, household equipment and services, annual inflation was 6.3%. Food and non-alcoholic beverages saw inflation of 5.9%.

The ABS said goods accounted for 79% of the CPI rise last quarter, reflecting “high freight costs, supply constraints and continued strong demand”.

Online retailers could take advantage of the inflationary environment

There are a few factors that could mean online retailers are better able to handle the current situation than their brick-and-mortar counterparts.

An example is that ASX online retail stocks may not have the same exposure to rising costs. For example, online retailers do not have a network of stores. Stores have costs like salaries, electricity and rent. Wage costs and electricity costs are rising. Online retailers don’t have the sales staff to pay more salaries.

Another possibility is that online retailers might collectively be able to attract shoppers looking for the cheapest prices amid inflationary damage to household budgets. Discounted online sales could be particularly attractive during this period.

Kogan founder Ruslan Kogan made comments today that highlighted the potential shift in customer behavior:

The times are changing. In these uncertain times, people don’t want to change their lifestyle, but they are happy to change the way they shop. We know that in an environment where great value becomes even more important, fills an important need.

And after?

There is no crystal ball to tell what will happen next with inflation.

But, August will reveal plenty of results and trading updates to tell investors how things are going. Prospect statements and advice might be of particular interest.

Anne G. Cash