Investors have been a little wary of ASX retail shares in 2023 in light of high inflation and interest rates.
But one expert thinks higher-quality retail stocks are likely to see an uplift over the coming years due to the benefits of population growth through massive immigration.
The latest data from the Australian Bureau of Statistics (ABS) showed a net overseas migration gain of 170,900 people in FY22.
This will balloon to a net gain of 400,000 in FY23, with another 315,000 net in FY24 (courtesy abc.net.au).
According to a statement from Migration Minister Clare O’Neil, the Government is increasing the number of migrant visas offered “to address parts of the Australian economy currently experiencing severe shortages, impacting the everyday lives of Australians”.
Emanuel Datt from Datt Capital names two ASX retail shares he likes best for the coming few years.
They are diversified retail group Premier Investments Limited (ASX: PMV) and department store network Myer Holdings Ltd (ASX: MYR).
ASX retail shares to benefit from migration boost
In an interview on Ausbiz, Datt said the biggest factor over the next couple of years would be higher immigration inbound into Australia:
… [it’s] a big increase, it’s 3% of Australia’s population and ultimately new immigrants will want an Australian standard of living which globally is one of the highest standards of living.
A number of sectors will benefit from this, first and foremost in our mind will be education, health, retail, and real estate.
Go for retailers that can pass on inflationary costs
Datt says he favours ASX retail shares that can pass on increased costs due to inflation.
Some retailers have more scope to do this due to the popularity and price point of their products and services or their unique business models.
Datt explains:
Names like Pacific Smiles Group Ltd (ASX: PSQ), which is a dental roll out. Everyone needs a dentist to stay healthy and it’s a critical service. Obviously a growing company, so I think they do have that ability to pass costs through.
Other names would be retail names like Myer and Premier … as well. These are the sorts of businesses that I think provide what I would call affordable luxury.
Everyone likes to have the nice things in life but obviously no one wants to pay too much given the affordability out there. And I think these two particular companies are well placed to capture that [sic] demand we expect over time.
Why buy Myer shares?
Datt said Myer had changed the way it operated, with COVID forcing it to make a number of pivots in its business model.
He comments:
Over the years of lockdown that we’ve just come out of, Myer were actually able to develop a very strong online channel and marketplace and that has really added a string to their bow.
Ultimately with the retail industry as a whole, being able to control your costs of servicing the customer is very important.
Historical issues have slowly started to be fixed over time. The big historical issue with Myer was the amount of floor space in their retail stores, they had basically leased more space than they actually required to service their customers.
They’ve made significant headway in strengthening the business and future-proofing the business, in fact.
Myer shares closed 5.43% higher on Friday at 68 cents apiece. The ASX retail share is up 37% over the past year.
Why buy Premier Investments shares?
Premier Investments owns popular brands like Smiggle, Dotti, Just Jeans, Portmans, and Jacqui E.
Datts says Premier is a best-in-class operator among ASX retail shares with an outstanding track record for growth and shareholder returns.
He comments:
Best-in-class retailer run by the best in the business in Solomon Lew and his team … it’s had a pretty incredible growth trajectory over many years and I don’t think I really see that slowing down.
… The team has proven that they’re canny and definitely demonstrated they have the ability to make great returns through thick and thin.
[Premier has] got a really solid well-diversified portfolio and … it’s continuing to grow. They’ve definitely demonstrated the ability to innovate as well.
Premier Investments shares closed down 0.94% on Friday at $22.03 per share. The ASX retail share is up 2.70% over the past 12 months.
