The retail sector is struggling, with most companies reporting a disappointing Christmas and New Year period.
There are a few exceptions but shop owners, particularly apparel retailers, are facing massive competitive pressures.
This is a long-term and short-term trend with only six traditional retailers remaining on the NZX.
The top five have a total sharemarket value of only $2441 million with Briscoe Group topping the list with a market value of $718m (see table).
Rod Duke's company is followed by The Warehouse ($711m market value), Kathmandu ($541m), Hallenstein Glasson ($239m) and Michael Hill International ($232m).
The other listed traditional retailer is Smiths City, which has a market value of only $15m.
Since 2000, the NZX has lost retailers Arthur Barnett (takeover), Kirkcaldie & Stains (takeover), Pacific Retail (takeover), Postie Plus (receivership) and Pumpkin Patch (receivership).
The share price performance of the NZX-listed retailers has been disappointing while many online retailers, particularly Trade Me, have produced excellent returns.
Trade Me, which has had a total shareholder return of 43.0 per cent for the past 12 months, has a current market value $2517m.
This compares with a combined $2456m for the six traditional NZX-listed shop owners.
Australian listed retailers have had similar experiences with Myer Holdings, the major department store owner, being a total disaster as far as investors are concerned. Myer's share price has plunged from A$4.10 to just 37.5 cents since the company listed in 2009.
It is no coincidence that the two largest Australian retailers are Woolworths and Coles, two supermarkets in the consumer staple sector.
Meanwhile, Harvey Norman, JB Hi-Fi and Premier Investments are focused on the more difficult consumer durables sector.
Premier operates a range of stores under the Just Jeans, Peter Alexander, Jay Jays, Smiggle and several other brands.
Long-term problems for the traditional retail sector include increased competition, particularly from online retailers, changing consumer trends, overcapacity and high rental costs.
Australia Post's 2018 Online Shopping report shows that online spending increased by 18.7 per cent in 2017 compared with a 2.5 per cent increase in traditional retail spending.
The report concludes that online shopping represented 7.4 per cent of total Australian retail sales in 2017 and Australia Post is predicting that 10 per cent of items will be bought online by 2020.
The top three online Australian products by spend in 2017 were consumer electronics, clothing and books.
Fashion has become the powerhouse growth category of online Australian shopping, representing 35.6 per cent of online purchases.
This category grew by 26.5 per cent online in 2017 while traditional fashion sales increased by only 1.5 per cent over the same period.
Traditional retailers are under huge pressure as shoppers try on garments in store but subsequently purchase online after trawling the web for the lowest prices.
Australia Post report that "Australians are buying online more frequently, but spending slightly less per purchase. This is likely due to the growing competitiveness of the eCommerce landscape".
Another important development is the establishment of specific sales events, including Black Friday, Cyber Monday, and Click Frenzy.
Black Friday, which is the day after Thanksgiving Day in the United States, has spread worldwide. The Wall Street Journal reported that online sales were buoyant on Black Friday last year.
The US Commerce Department seemed to confirm this when it reported that total retail sales for November were 4.3 per cent higher than November 2017 but non-store retailers, which includes Amazon and other online retailers, experienced year-on-year sales growth of 10.8 per cent.
These special event sales are characterised by huge price discounts, making it difficult for traditional retailers to compete.
Black Friday and Cyber Monday, with the latter just three days after the former, encourage individuals to complete most of their Christmas shopping in late November and early December.
These special events are having a massive impact on the pre-Christmas activity of traditional retailers.
ShopperTrak Australia, which monitors the country's retail foot traffic, reports that store visits declined by 12.7 per cent in December 2018 compared with December 2017.
Australia Post had this to say: "The growth of online sales events, such as Black Friday and Click Frenzy, is changing consumer buying behaviour. More shoppers are holding off on purchases until these events, to potentially 'grab a bargain'."
Meanwhile, the latest Bank of New Zealand online retail sales report, for November 2018, shows that online retail sales growth also remains strong in this country.
The report revealed:
• New Zealand's total online retail spending increased by 9 per cent in November, compared with November 2017, while traditional store sales were up 4.9 per cent
• Strong growth in online purchases from local retailers was offset by sluggish offshore online growth
• Local online sites experienced spending growth of 15 per cent compared with only 3 per cent for international sites
The BNZ notes that international online purchases are comparable with a particularly strong November 2017 figure and went on to comment that it is "possible that some people pushed November purchases into early December, as they gain more confidence with international delivery times".
As traditional retailers struggle, investors are finding new ways to invest in other successful retail entities, including Trade Me and Amazon.
Another alternative is the buy now, pay later (BNPL) sector, a digital service that allows shoppers to buy online and pay by instalment.
This service appeals to the 18-39 age group as it provides instant gratification, with a low entry price.
Afterpay Touch, the high-flying ASX-listed company with a market value of A$3766m, is a big BNPL player. The company has New Zealand connections as two of its major drivers, Anthony Eisen and Michael Jefferies, are former GPG executives, and David Hancock, a former Tower director, is an executive director. Jefferies is also a former Tower director.
Afterpay's share price has soared from A$2.50 to A$15.91 since listing in June 2017 and Eisen, who is the company's executive chairman, has a shareholding worth A$358m.
In simple terms, Afterpay allows retailers to use its online platform for a fee of approximately 4 per cent of the sale price.
Afterpay argues that this allows retailers to connect with the millennial age group, which prefers to purchase online.
Afterpay is attractive to millennials because they can pay in four instalments without being charged interest.
The company, which is being closely watched by politicians and regulators across the Tasman, has grown rapidly. It has 3.1 million active customers with 650,000 in the United States.
Approximately 23,000 retailers are using its platform with around 1400 in the United States.
It is difficult to know whether Afterpay will be a long-term success, partially because it operates in an extremely competitive market, but its massive growth reflects the rapidly changing marketplace and the need for retailers to connect with the elusive millennial generation.
It also reflects how younger businesspeople are spotting new opportunities while the older generation, including Eisen's former GPG boss Sir Ron Brierley, has taken a different approach.
While Eisen has been a major driver behind Afterpay, Sir Ron has invested in Kirkcaldie & Stains and Smiths City, two old traditional retailers.
Sir Ron's Mercantile Investment Company acquired Wellington Merchants, after it sold Kirkcaldie & Stains to David Jones, and it also owns nearly 20 per cent of Smiths City.
Smiths City reported a loss of $7.2m for the April 2018 year and a further loss of $0.1m for the first half of the April 2019 year.
Sir Ron probably should have given Eisen more responsibilities at GPG as the younger businessman has demonstrated that he can identify attractive investment opportunities in a rapidly changing retail world.
- Brian Gaynor is a director of Milford Asset Management which holds shares in Trade Me, Afterpay and Amazon.com.