Your Quarterly E-Zine
Edition 11 • December 2019

This website contains the latest edition of Forsyth Barr Focus, a quarterly on-line magazine written by senior members of Forsyth Barr's investment team.

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ON SALE

According to the BNZ , nearly 10% of all retail sales made in New Zealand are now made on-line via the internet, with the growth rate in on-line sales now nearly matching that for retail sales overall.

Simulation Theory hypothesises that all aspects of human existence can be broken down into binary computer code, with our current world created around a form of mathematical matrix. Truth is sometimes stranger than fiction. IBM has already started a research project in its Almaden Research Centre in California to create cognitive computing systems capable of mimicking the human brain in the way they sense, respond to and solve problems.

In practice, today many aspects of human interaction can be digitised: from purchasing goods and services, to acquiring knowledge and information; from communicating remotely to socialising in virtual reality. In many respects, it can be argued that the physical interaction which has characterised professional and personal relationships of past generations is becoming increasingly superfluous.

In fact, PricewaterhouseCoopers note that by 2020, an entire generation, known as Generation C (for “connected”), will have grown up in a primarily digital world based around the internet, mobile devices, texting and social networking. The emergence of De Quervain syndrome or “blackberry thumb” is perhaps symptomatic of the reliance people now place on interaction using digital devices.

Reflecting this generational change, in 2018 global consumer internet traffic is forecast to reach 107,958 petabytes  per month, with a 21% compound annual growth rate . Investors with an eye on this trend will be carefully considering how such rapid change may influence traditional retail business models and shareholder value.

The news this week that New York’s last classical sheet music store has closed, follows the gradual demise of the traditional retailer whose products can be digitised and purchased on-line. By way of further example, in New Zealand analysis  of data provided by the Companies Office shows a total of 291 bookstores have closed since 2007.

According to the BNZ , nearly 10% of all retail sales made in New Zealand are now made on-line (via the internet), with the growth rate in on-line sales now nearly matching that for retail sales overall. Overall, nearly half of all on-line sales are being made through international merchants, which emphasises the increasing globalisation of the traditional consumer market for retail goods and services.

Briscoes (BGR) is one company, whose on-line sales comprise a bigger portion of overall sales, growing by 50 percent year-on-year. Briscoes’ Managing Director Rod Duke acknowledges the considerable potential for on-going growth in on-line sales, with the company looking to increase its share of the market which prefers to shop this way.

The Warehouse Group (WHS) is also realising the benefits of virtual stores, with on-line sales growing by 30% in the 2014 summer quarter (November to January). The company reported that a product was shipped every four seconds in December 2014, with internet traffic showing more than 1.3 million unique users in the month.

Globally, the best known example of the growth of on-line sales is perhaps amazon.com, which recently reported more than 237 million active customer accounts worldwide and net income of US$214 million for the fourth quarter of 2014.

In the movie The Matrix, Morpheus observes that “no one can be told what the Matrix is – you have to see it for yourself.” In the fast-moving world of retail, the evidence is now clear to see that the behaviour of consumers is moving increasingly on-line, with more people becoming comfortable with performing non-personalised transactions.

However, while it can be suggested that convenience has come at the expense of a personalised relationship between consumer and retailer; digital transactions are unlikely to become a total substitute for bricks and mortar stores. One survey notes that even if shoppers buy everything on-line, two-thirds will still probably go to a store to at least look at the product before purchasing.

“Shopping Simulation”; perhaps that’s a theory worth exploring.

By Gordon Noble-Campbell
Director, Private Client Services

This article was first published in March 2014