Investors wondering how retailers are travelling in the second half of the 2017-18 financial year – we know most, bar a a few like Kmart, Woolies and The Reject Shop and possibly JB Hi-Fi did OK in the December half – should look at the March quarter Consumer price Index report from the Australian Bureau of Statistics this week.
Twice in commentary on inflationary pressures in various sectors of retailing the ABS referred to impact of competition and price deflation.
"The main contributors to the fall in the clothing and footwear group this quarter are garments for women (-2.5%) and garments for infants and children (-4.9%) due to ongoing competition and discounting activity in the retail industry. Over the last twelve months, the clothing and footwear group fell 3.5%.
"The main contributor to the fall in the furnishings, household equipment and services group this quarter is furniture (-2.8%) due to ongoing competition and continued discounting activity in the retail industry. Over the last twelve months, the furnishings, household equipment and services group fell 0.1%. "
That’s a reference to the fierce price war in retailing thanks to weaker household spending, online competition (Amazon and local companies) and the influx of foreign retail chains such as Aldi, Costco and Zara.
So look for retailers in these sector – Specialty Fashion Group for example, Noni B perhaps (although he has been doing OK), chains such as Myer (known), Target, perhaps sector leader, Kmart. H&M, the Swedish invader might soon be departing is the company’s plans to close or retrench its footprint (to boost sales and slash unsold stocks) extends to Australia, as many in the sector believe it will.
Harvey Norman (through its furniture retailing business), perhaps JB Hi Fi, Nick Scali (its Chinese supplier has been brought in as a cornerstone investor by the Scali family).
Kathmandu is doing well, but Super Retail group has not been able to gets its Ray’s outdoor arm working well and the tough competition and price deflation could create difficulties in bedding down the recent $135 million takeover of the Kiwi MacPac chain
And the National Australia Bank last week published the results of a survey of retailing about the sector’s investment plans for the next year or so. Given the ABS’s comments about competition and the results we are seeing (and the various collapses in the past couple of years, such as Dick Smith)
"Just under 50% of retailers Australia-wide did not expect that there would be any change in the number of stores they operate. However, somewhat surprisingly given that retail business conditions have been lagging behind other sectors, and the growing market share of online retailers, more respondents indicated that they expected to see an increase (albeit generally only moderate) in the number of stores than a decrease
"Responses were broadly similar across states, although the proportion of respondents expecting an increased number of stores was smaller in South Australia than the other mainland states. New South Wales was the only state where no respondent expected to see a reduced number of stores.
"Looking at responses by business size (based on number of employees) expectations about the number of new stores were higher for larger firms, while smaller businesses were more likely to expect no change in the number of stores (and a little more pessimistic about the number of store closures).
By sub-sector, food retailers were both the most optimistic and pessimistic – a greater proportion saw a decrease in the number of stores over the next two years, but at the same time the share indicating an increased number of stores was also equal to or greater than the other sub-sectors. The sector with the highest net balance (% expecting an increase less % expecting a decrease) was ‘Other’ category (i.e. Retailers other than personal/households, motor vehicle & food retailers), while Motor Vehicle Retailing/services had the lowest.
And part of the NAB survey was devoted to online spending and website development (given the arrival of Amazon in this country).
"The responses to the question about the online development and capital expenditure budget confirm that the future of retailing is increasingly online. No respondent indicated that they would reduce their online development budget, with 60% of retailers indicating that it would increase over the next two years.
The responses were broadly similar by state except for businesses in NSW which has the highest proportion of respondents indicating that they expect an increase in the online development budget.
The smaller businesses surveyed were more likely to indicate that the online budget would be unchanged compared to the mid/large sized firms.
By sub-sector, Motor Vehicle Retailing/services had the largest proportion of respondents expecting an increase in the online budget, followed by Personal and Household Good Retailing.
