Consumer stocks have fared better during the COVID-19 crisis than many feared. But some ASX retail stocks are better placed in the post-coronavirus world.

The ASX retailers that have performed better than expected are those that have capitalised on changes to consumer behaviour during the shutdown.

These include those that can readily ramp up their online presence and sells products that are in demand from stay-at-home consumers.

ASX retail winners and losers

UBS points to another important trend. The increasing importance of customer data, which the broker believes will become the most important currency.

Mind you, not all retail companies have been able to ride these trends and the gap between the haves and have-nots are only set to widen.

“The gap between winners and losers looks set to expand over the next 3+ years,” said UBS.

“What is less clear is how P&Ls [profit and loss] will change for those that capitalise on accelerated structural change.”

3 things to watch for

The broker identified three potential changes to the P&Ls of retailers going forward. The first is the levers for sales growth, which can come from market share gains, utilising data to get shoppers to buy and expansion into new verticals.

The second is margin. There is an opportunity for the better retailers to increase profitability through more targeted promotions, cost-fractionization and more profitable verticals.

Finally, is the ability to lift return on invested capital (ROIC). This is related to expanding profit margins, but also reflects a lower capex in the longer run with the increased move to online and a lower rental bill.

Retailers are actively renegotiating with shopping centre landlords to cut rents and/or reduce the number of shops.

As I wrote last month, mega malls are losing their strategic advantage as the growth of online sales accelerate.

Best retail stocks to buy now

Perhaps the more important question for ASX investors is which retail stocks are best placed to report improvements across all three areas?

While there are a number on the S&P/ASX 200 Index (Index:^AXJO) that fall into this category, including online retailer Kogan.com Ltd (ASX: KGN) and fast food chain Domino’s Pizza Enterprises Ltd. (ASX: DMP), not all are trading on attractive valuations.

If you added this as an extra filter, three consumer-facing stocks stand out, according to UBS.

These are supermarket giant Woolworths Group Ltd (ASX: WOW), stationery and apparel group Premier Investments Limited (ASX: PMV) and KFC franchisee Collins Foods Ltd (ASX: CKF).

More reading

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• ASX 200 jumps 3%: CBA rebounds, Afterpay hits a new record high
• Why AusCann, Phoslock, Kogan, & Village Roadshow are dropping lower
• Investing $1,000 into these ASX 200 shares could be a smart move

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd and Premier Investments Limited. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Collins Foods Limited and Domino’s Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Over the last three decades the Australian share market has provided investors with an average return of approximately 9.5% per annum.

This means that if you’re going to beat the market over the next decade, you’ll need to aim high and target returns of at least 10% per annum.

But which shares could be capable of beating the market in the 2020s? I think the two listed below could be market beaters:

a2 Milk Company Ltd (ASX: A2M)

I believe that a2 Milk Company could be a market beater over the next decade. This is due to its expanding fresh milk footprint and the growing demand for its infant formula in the China market. This strong demand was evident in the first half when a2 Milk Company’s China label infant nutrition sales doubled to NZ$146.7 million.

While this is a sizeable figure, the company only has a very modest market share. And due to its strong brand and increasing distribution network in the country, I expect the company to capture a greater slice of the market throughout the 2020s and drive further strong earnings growth.

SEEK Limited (ASX: SEK)

Another ASX share which I think could be a market beater in the 2020s is SEEK. While 2020 has been a difficult year for the job listings giant because of the pandemic, I believe its long term outlook is as positive as ever. This is due to its leadership position in the ANZ market and its rapidly growing China-based Zhaopin business.

It is the latter business which I expect to be the key driver of growth over the next decade. In the first half of FY 2020 it contributed 47.8% of SEEK’s total revenue. This is almost double the revenue contributed by the ANZ business. Given the size of the China market and its opportunities in other key Asian markets, I believe the company is well-placed to hit its revenue target of $5 billion later this decade. This compares to revenue of $1,537.3 million in FY 2019.

More reading

• Is the SEEK share price a buy right now?
• 3 five-star ASX shares I would buy today
• ASX shares I’d buy if this decline is a second COVID-19 crash
• S&P quarterly rebalance: A2 Milk added to ASX 50 & NEXTDC in the ASX 100
• 3 of the best ASX 200 blue chip shares to buy today

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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