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The retail sector’s Christmas surprise

By Brendon Lau


This Christmas shopping season won’t be as bad as some sceptics believe and could even throw up a few positive surprises, according to retail consultant Brian Walker, who is the founder and CEO of the Retail Doctor Group.

Retail Doctor provides advice on consumer and retail strategies and counts Myer Holdings Ltd (ASX: MYR), Terry White, Qantas Airways Ltd (ASX: QAN) and GPT Group (ASX: GPT) among its clients.

The retail sector has been marred by falling property prices, over-indebted consumers and profit disappointers like Myer, Kogan.com Ltd (ASX: KGN) and Lovisa Holdings Ltd (ASX: LOV).

“I think the Christmas trading season will be very similar to the last two seasons. I am expecting sales growth of 2 per cent to 3 per cent,” said Walker.

“But the devil’s in the details. We will get mixed performance, and margin pressure across the industry will be more intense than in other years.”

Competition is also ramping up, particularly as offshore rivals such as H&M, Uniqlo and Amazon.com are ramping up their assault on the local market.

Despite these challenges, one retailer that Walker thinks has a bright future is JB Hi-Fi Ltd (ASX: JBH). He believes the retailer can hold its own against the likes of Amazon because it is highly adaptive and is investing in its stores to improve the instore experience.

While online is the fastest growing segment of the retail market, Walker believes Australian shoppers will continue to spend more instore than online for many years to come.

“I’ve seen some experts forecasting online sales in the US will account for 20 per cent of total spend in 2020 and 30 per cent by 2030,” he said.

“I think that is too optimistic, and in Australia I think we will only reach 15 per cent in the next three years from around 10 per cent currently.”

Other retailers that Mr Walker thinks can thrive are Super Retail Group Ltd (ASX: SUL) and Premier Investments Limited (ASX: PMV), although he believes the Australian market isn’t big enough to support both Myer Holdings Ltd (ASX: MYR) and David Jones.

Among the discount department stores, he also thinks there are too many players and weakling Target is unlikely to survive in its current form.

He also told First Mail that Reject Shop Ltd (ASX: TRS) was in the same boat as Target before news of a takeover offer was announced to the market on 21 November.

Mr Walker will speak on a conference call on Wednesday at 3.30pm to discuss the risks and opportunities for the listed discretionary retail plays.

Figure 1: Australian consumer sentiment

Source: RBA

 

First published in the Field Research November 2018 Newsletter

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