What makes a retailer resilient in a sector facing structural shifts, online competition, and changing consumer habits?
In a recent Ausbiz interview, Alvia Portfolio Manager Chris Scarpato pointed to Nick Scali (ASX:NCK) as a standout in the consumer discretionary space. The company’s success comes down to a few enduring principles: a simple, focused business model, strong supplier relationships, and a capital-light approach to operations.
Unlike many retailers, most Nick Scali sales begin with a 35% deposit from the customer. The product is then manufactured to order, with delivery occurring several weeks later. This means the company holds only a lean level of inventory, reducing the risk of stock obsolescence and avoiding the need to tie up large amounts of cash in working capital. The result is high returns on invested capital – a rare achievement in retail.
Nick Scali’s expansion into New Zealand and the UK demonstrates the strength of its model, which combines scale with a disciplined focus on its core mid-market customer. The company has also adapted to the rise of online retail, strengthening its e-commerce offering alongside the in-store experience. Customers can now choose quick-delivery online purchases or customised products ordered in-store, giving Nick Scali the flexibility to compete with digital-first players like Temple & Webster (ASX:TPW).
Chris also discussed the broader consumer discretionary sector, noting that recent rate cuts have driven rallies in names like Wesfarmers (ASX:WES), JB Hi-Fi (ASX:JBH), and Nick Scali. However, he cautioned that inflationary pressures remain, and that clear earnings guidance will be crucial as reporting season approaches.
“The best-performing companies in the consumer discretionary sector, both locally and abroad, have kept to a simple philosophy and focused on serving their key customer base well,” Chris said.