Navigating the Slowdown: Sector-Specific Opportunities in Australia's Online Retail Landscape

The May 2025 NAB Online Retail Sales Index revealed a notable slowdown in Australia's online retail sector, with monthly growth dipping to 0.7%—a stark contrast to April's 1.1% expansion. Yet beneath this deceleration lies a mosaic of opportunities. Investors should pivot toward underperforming sectors poised for recovery and resilient segments driving growth, while doubling down on logistics and e-commerce infrastructure plays. Here's how to position portfolios for the next phase of this evolving market.

The Sector Divide: Value Plays and Resilient Winners

The slowdown isn't uniform. Fashion and homewares/appliances—which have been lagging for months—present compelling value opportunities. Fashion sales rebounded slightly in May after April's contraction, but valuations are now depressed. Retailers like Kathmandu (KMD.AX) and Super Retail Group (SUP.AX) trade at multiples far below their pre-pandemic peaks. Investors with a 12–18-month horizon could benefit from sector-specific rebounds, particularly as pent-up demand for discretionary goods resurfaces post-volatility.

Meanwhile, takeaway food—a category that's struggled since 2022—remains undervalued despite its critical role in convenience-driven consumption. While May's sales dipped, this sector's long-term growth trajectory is supported by urbanization and labor market tightness. Companies like Quick Service Restaurants (e.g., Domino's Pizza (DMP.AX)) and meal-kit platforms could outperform if they adapt to hybrid delivery models.

Regional Disparities: Victoria's Overperformance vs. WA's Hidden Strengths

Victoria's dominance in fashion, groceries, and liquor sales—driven by Melbourne's dense urban consumer base—has made it the star performer. However, its outperformance may signal overvaluation in these sectors. Investors should look instead to Western Australia, where a contraction in overall online sales masks pockets of resilience.

WA's necessity retail—including groceries, water care products, and fitness equipment—remains robust. The state's pool and spa sector, for instance, reported 23% year-on-year growth in hot tub sales and 26% in water care products, driven by climate adaptation and wellness trends. Retailers like Spotlight (SPF.AX), which supplies DIY and home improvement products, could capitalize here.

Logistics and E-Commerce Infrastructure: The New Growth Engine

Despite monthly volatility, online retail's share of total trade rose to 14.3%, underscoring the need for robust logistics. Investors should prioritize last-mile delivery solutions and omnichannel retailers.

• Australia Post (ASX:APX) and TOLL Holdings (TLS.AX) are critical to the supply chain, with demand for efficient fulfillment rising as consumers blend online and offline shopping.
• Omnichannel retailers like Wesfarmers (WPL.AX) and Coles Group (COL.AX) are integrating physical stores with online platforms, reducing reliance on third-party logistics.

The BOPIS (Buy Online, Pick Up In-Store) model, now adopted by over 30% of shoppers, also favors retailers with strong physical footprints.

Investment Strategy: A Balanced Approach

1. Value Plays:
2. Buy into undervalued sectors like fashion (KMD.AX, SUP.AX) and takeaway food (DMP.AX).

3. Diversify into WA's necessity-driven retail via Spotlight (SPF.AX).

4. Growth Plays:

5. Invest in logistics (APX.AX, TLS.AX) and omnichannel leaders (WPL.AX).

6. Avoid:

7. Overvalued Victoria-centric stocks lacking diversification.
8. Pure-play online retailers without physical infrastructure.

Conclusion: The Slowdown is a Filter, Not a Failure

The May slowdown isn't a death knell for online retail—it's a market correction favoring resilience and adaptability. Investors who identify undervalued sectors, target regions with hidden strengths, and bet on logistics infrastructure will position themselves to capture the next wave of growth. As the NAB report notes, online retail's share of total trade continues to rise; the challenge is to navigate the volatility and capitalize on the opportunities it reveals.

Final Take: The Australian online retail landscape is bifurcating. Focus on value in lagging sectors, exploit regional disparities, and double down on logistics. This isn't just about surviving the slowdown—it's about thriving in its aftermath.