Australia | Jan 14 2019
Discretionary retailing encountered difficult Christmas trading in 2018 and brokers suspect a depressed consumer environment bodes poorly for the upcoming reporting season.
-December retail trading in Australia deteriorated relative to preceding months
-Margin issues loom large for specialty apparel & accessory retailers
-Food inflation continues to support supermarket growth
By Eva Brocklehurst
The Christmas shopping season of 2018 heralded more angst than usual for retailing, given the number of headwinds prevailing for consumers both domestically and globally. A reasonably solid November appears to have given way to a poor outcome in December, particularly for specialty retailers.
Ord Minnett points out investors are negatively disposed to discretionary retail, as good news appears to be ignored and bad news punished, and this theme may continue until countered by the delivery of strong results.
Morgan Stanley lowers its estimates for discretionary retail stocks under coverage to reflect the soft environment and weak Christmas trading. Headwinds include falling house prices, "Black Friday" discounting and weaker equity markets.
Meanwhile, Amazon continues to expand its offering and extend its advertising, although the impact appears limited to date. Morgan Stanley also notes consumers appear to be browsing online then transacting in-store yet, while this increases conversion rates, a soft market still prevails. New vehicle sales fell -14.9% in December, calculated to be the largest fall since the global financial crisis.
Most of Deutsche Bank's survey contacts signalled trading at the end of 2018 was much weaker than previously expected, and some said it was the worst Christmas for a number of years. Traffic and sales were soft and margin issues loomed large for specialty apparel & accessory retailers.
The broker notes consumers have been trained to buy on promotions and Black Friday in November pulled sales out of December. Department stores appear to have performed better than specialty retail, a departure from recent trends.
Retail sales increased in November a little more than expected but less than the increase recorded in the prior November and, Morgan Stanley calculates, annual growth fell to 2.8% for the year from 3.6%. Strength occurred in apparel, while furniture and restaurant sales disappointed the broker. Electronics sales, while strong and helped by Black Friday sales, were less than the prior November.
In other categories, furniture/furnishings slowed versus trend while hardware was relatively resilient. Online takeaway food growth was 9.7% in November while total takeaway sales grew 1.7%.
The data are even weaker when taking into account inadequate seasonal adjustments, Credit Suisse asserts. The broker notes online transactions contributed 40% of the growth in retail sales in November. While discretionary retail is likely bearing the brunt of slower consumer expenditure, the broker suggests supermarkets may be "a place to hide".