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Published 02 May 2013 00:46, Updated 06 May 2013 12:20
Along with Oroton JB Hi-Fi and AMP, Flight Centre looks well placed to integrate different service models under one brand. Photo: Mayu Kanamori
The market often paints stocks in black or white terms: print media versus online; traditional retailing versus e-commerce; or full-service versus discount broking, to name a few. Consumers are rarely this polarised: they want the best of both worlds and to move seamlessly between the two.
Broking is a good example. For years, investors have been told to use a full-service broker if they want advice, or a discount broker if they are self-directed. But many investors want full-service advice for some transactions, such as buying small-cap stocks, and discount broking services for others. Resisting this trend is pointless.
The same applies in retailing. Increasingly, consumers will want a traditional retailer for some purchases and an online retailer for others. Travel is another example. More complicated trips might require a traditional travel agent and others can be booked online. Rather than focus on one service model or the other, the big winners will be companies that let their customers switch between models.
It’s hard to think of many, if any companies that have captured the middle ground between full service and no service, and created barriers to entry for rivals from both ends of the service spectrum. Companies that let their customers choose between higher-cost, full-service advice and low-cost, minimal advice, as circumstances dictate – all under one brand – will score.
Some impressive companies are hurtling in this direction. Their mindset is that the customers will start some transactions in a traditional service environment, and finish them online. And that they should give customers an ability to choose the right service at the right time.
Flight Centre is a standout. I have been bullish on the travel operator for the past year – and still am – partly because of its growing presence in online travel. Flight Centre’s initiative to blend traditional travel services and online bookings has tremendous long-term potential.
Rather than choose between a traditional travel agent and an online booking service, Flight Centre customers will increasingly plan a big part of their trip in-store, and book it online. That should provide higher margins as customers value the extra service from a traditional travel agent, and the flexibility of being able to book more travel online through one trusted service provider.
The same principle applies in fashion retailing. OrotonGroup, which looks oversold, has done a stellar job in integrating its traditional stores and online sales, which are growing rapidly off a low base. It knows more customers will increasingly want to see and feel its luxury goods in-store, and get a better deal by purchasing online.
Again, it’s about giving customers the choice.
Kathmandu Holdings, Speciality Fashion Group and JB Hi-Fi are also marketing their online presence more aggressively. JB Hi-Fi, in particular, has strong potential to own the middle ground in electronics retailing between traditional full-service advice and online sales.
It has the brand, balance sheet and retailing nous to let consumers move between the two service models – at least for bigger-ticket electronics items. Like OrotonGroup, JB’s online sales are still small in its overall revenue, but there is terrific scope to sell more services online or build a strong presence in online homeware sales.
After a 50 per cent share price rise this year, JB is due for a pause. Still, long-term investors such as self-managed superannuation funds could do a lot worse than get cyclical retail exposure through JB, which has good prospects despite a maturing store network. JB knows its customers better than most retailers.
Wealth-management firms that can dominate the middle ground between full-service and low-service models also have tremendous potential. AMP’s push into the SMSF sector has impressed: its customers have access to full-service financial advice, SMSF services for self-directed investors, or a mix of the two.
Bell Financial Group is also well positioned. It offers full-service stockbroking and financial advisory products and Bell Direct online trading. More full-service broking firms will realise they cannot stop clients pinching their best ideas and trading online to cut brokerage; just as retail customers get advice in-store, and buy online to cut costs.
Flight Centre, OrotonGroup, JB Hi-Fi and AMP look exceptionally well placed to integrate different service models under one brand, and change their business model to reflect customer needs. Each is a stock for long-term investors to consider buying on any significant price weakness.