* Game Digital re-emerges after old firm nearly went bust
* Historic firm Thomas Cook fighting back vs online rivals
* Physical stores still have advantages over Internet
* Home Retail Group has also managed turnaround
By Sudip Kar-Gupta
LONDON, Aug 1 Europe's traditional High Street
retailers are defying the threat from online rivals by making
their businesses more efficient and in-store shopping more
Although overall growth trends still firmly favour online
shopping, higher share prices flag investor faith in chains such
as UK video-game retailer Game Digital,
electrical-appliance group Dixons, and Swiss Mobilezone
Such companies have shut their less successful stores to
focus on the most profitable outlets, and have adapted to meet
demand from shoppers who, even if they buy online, often want to
collect their goods in person.
By contrast, online retailers such as ASOS and even
U.S. giant Amazon have had trouble justifying their
loftier stock-market valuations: ASOS is down 59 percent year to
date and Amazon is down 20.5 percent, reflecting investor
impatience over the cost of development plans.
"Against the odds, we think that a number of (traditional
retailers) have adapted their strategies successfully and are
beginning to fight back against the online giants," said Rob
Jones, co-head of European equities at Union Bancaire Privee.
Game Digital is one example: like fellow Brit
music-and-movies mainstay HMV, the old Game Group company went
into administration in 2012. However, unlike HMV, it revived in
a 2014 flotation after shedding half its stores and deepening
ties with console-makers Sony and Microsoft.
Its shares are up 7 percent since then.
Chains such as Game attract younger teenages who are less
likely to use bank cards and therefore less likely to make
purchases online, Jones said.
The need for stores to stay relevant for online shoppers has
been underlined by the demise of stores that were once staples
of shopping streets and retail parks. Virgin has closed its
flagship Megastore on Paris' Champs Elysees; British electrical
retailer Comet went into administration in 2012.
Electrical goods retailer Darty, whose shares are
down by around 30 percent since the start of 2014, has fought
back in its core French market by buying a popular website. It
posted higher profits in June.
UK clothing retailer Next has profited from a
"click-and-collect" delivery scheme that allows customers to
collect goods ordered online straight from the store.
This chimes with recent improved performance at catalogue
retailer Argos, owned by Home Retail, which said its
decision not to cut back its extensive portfolio of Argos
outlets was justified because British shoppers were increasingly
ordering online and collecting themselves.
Next shares, up 26 percent year-to-date, have outperformed
ASOS. Similarly, electrical-goods retailer Dixons is up
by around 5 percent, helped by plans to merge with Carphone
Warehouse, while online domestic-appliances retailer AO
World's shares have slumped 50 percent.
"Physical retailers give consumers the power to decide
exactly how they would prefer to shop - something the pure
online merchants simply can't compete with," said UBP's Jones.
That pushes online retailers to go physical as well: ASOS
has partnered with local convenience stores and newsagents to
offer direct collection, while Amazon also offers pick-up spots.
But they still trade at much higher valuations than their
physical counterparts, with ASOS at a forward price-to-earnings
ratio of 43.92 versus a median of 14.71 for a basket of eight
European retail stocks.
Next vs ASOS share price: bit.ly/WP0GeC
Dixons vs AO World share price:bit.ly/1nMWYw4
Travel agent Thomas Cook, which has reported its
eighth straight quarterly profit rise, has benefited not just
from cutting costs and stores but also from shopper frustration
with increasingly complex online travel sites, investors said.
Thomas Cook's shares are down nearly 30 percent since the
start of 2014, but have still outperformed declines of 50
percent or more at online rivals Bravofly and eDreams
Another area that benefits from face-to-face customer
relations is telecoms: Swiss retailer Mobilezone has
opened new customer help centres and seen its shares rise by
nearly 10 percent since the start of 2014.
While figures from the UK-based Centre for Retail Research
show that online retail sales in Europe grew at double-digit
rates in 2013 versus flat-to-negative rates at physical stores,
strong brands are able to mix the two to their credit.
"These companies have successfully transformed themselves
while maintaining their traditional High Street presence," said
Andrea Williams, fund manager at Royal London Asset Management.
(Reporting by Sudip Kar-Gupta; Editing by Lionel Laurent/Ruth