Could ASX online retail shares be getting a boost out of inflation?

surprised shopper, unexpected news, person at computer with payment card,

surprised shopper, unexpected news, person at computer with payment card,

It was a day of celebration for ASX online retail shares, with some of them seeing share price gains that have delivered big outperformance.

Let’s have a look at the state of play for some of the leading names.

The Kogan.com Ltd (ASX: KGN) share price soared 50.16%.

The Redbubble Ltd (ASX: RBL) share price ended 22.75% higher.

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

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

Despite these large gains, they are still heavily in the red for 2022, but things could be looking up for them individually and as a sector. Company quarterly updates have been flowing thick and fast today.

Why could things be better than expected?

Normally there’s a reason for such exuberance in a particular sector.

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

For starters, Kogan’s update for FY22 may have included some promising signs for the sector. Sometimes investors like to take positive signs from an update from one business and then think that it’s applicable to other businesses.

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

Inflation picks up

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

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

The ABS noted that the most significant price rises were new dwelling purchases by owner occupiers (up 5.6%), automotive fuel (up 4.2%) and furniture (up 7%).

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

The ABS stated that goods accounted for 79% of the rise in the CPI in the latest quarter, reflecting “high freight costs, supply constraints and prolonged strong demand.”

Online retailers could benefit from the inflation environment

There are a couple of factors that could mean online retailers are able to deal with the current situation better than their bricks and mortar peers.

One example is that ASX online retail shares may not have the same exposure to the increase in costs. For example, online retailers don’t have store networks. Stores come with costs like wages, electricity and rent. Employee costs and electricity costs are rising. Online retailers don’t have the sales staff to pay more wages to.

Another possibility is the fact that online retail businesses collectively may be able to attract customers looking for the cheapest prices amid the inflation damage to household budgets. Discounted online sales could be particularly attractive during this period.

The founder of Kogan, Ruslan Kogan, made comments today that highlighted the potential changing customer behaviour:

Times are changing. In uncertain times, people don’t want to alter their lifestyle but they are happy to shift the way they shop. We know that in an environment where great value becomes even more important, Kogan.com serves an important need.

What’s next?

There isn’t a crystal ball to say what happens next with inflation.

But, August will reveal a lot of results and trading updates to tell investors how things are going. Outlook statements and guidance could be particularly interesting.

The post Could ASX online retail shares be getting a boost out of inflation? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Cettire Limited, Kogan.com ltd, REDBUBBLE FPO, and Temple & Webster Group Ltd. The Motley Fool Australia has positions in and has recommended Kogan.com ltd. The Motley Fool Australia has recommended Cettire Limited and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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