Why retailers missed out on summer love this year
The jury is out on my own situation, but as a nation we appear to be buying less stuff over the Christmas holiday period. Maybe it’s because we splurged on those late November Black Friday and Cyber Monday sales, or perhaps we just don’t see as much need for any more gadgets and would rather spend our money on entertainment, travel and actually doing things.
But no matter which way you look at it, our retail habits are changing.
Unfortunately for retailers, while they deal with this shift, their own costs are rising and competition from the likes of Amazon is getting more intense.
The latest stats on electronic card spending and early results from transtasman retail companies such as Kmart and Kathmandu certainly indicate softer-than-usual Christmas trading for non-food retailers.
The electronic card figures surprised economists and point to several factors affecting both consumers and companies selling goods.
ASB said the data suggested consumers were “on the sidelines” late last year, which is likely to weigh on fourth-quarter growth.
“2019 could be a testing year for the retail sector,” ASB senior economist Mark Smith said.
There were signs of “significant recoil” in spending on clothing and durable goods in December, he added.
The local market will get a clearer picture when The Warehouse Group and Briscoe Group provide their trading updates for the period but it’s unlikely they will escape the headwinds.
And with the sector most at risk from technological disruption, investor sentiment is changing.
Not all categories are equally under the same pressure.
Michael Hill, for example, came out yesterday with sales increases for November and December. In a good turnaround under new management, the company saw same store sales climb 2.9 per cent and 1.3 per cent for the two months respectively, helping halt a slide in performance for the jewellery firm.
But broadly speaking, companies are all quoting labour costs and rental costs going up faster than their own growth and creating margin pressure.
This was noticeable in the latest business confidence survey from the Institute of Economic Research where nearly a quarter of firms reported a drop in profits while a net 15 per cent expected profits to fall in the next three months.
The survey suggested this reflects building inflationary pressures with a net 47 per cent reporting rising costs in the December quarter, up from 44 per cent three months ago.
And clearly those firms are
Declining house prices and falling equity markets may have held consumers back from spending on discretionary items over Christmas.
finding it difficult to pass on rising costs, especially those exposed to discounting for popular online trading days.
There’s also macro data playing on people’s sense of wealth.
Declining house prices and falling equity markets may have held consumers back from spending on discretionary items over Christmas.
Across the Tasman analysts are lowering their earnings estimates for discretionary retailers as a result of disappointing Christmas trade and the tough economic environment for the sector.
Both Kmart and Kathmandu disappointed.
Weak clothing sales, particularly in womenswear, and a decision to stop selling DVDs hurt Kmart’s performance during the key Christmas trading period. Sales of everyday products also slowed compared to the same period in the previous year.
Kathmandu’s same-store sales for the 22 weeks to December 30 were down one per cent on the prior year.
While the company’s weak sales were offset by margin expansion, chief executive Xavier Simonet said the company experienced a disappointing Christmas and Boxing Day.
It is getting more difficult to compare periods given the relatively new phenomenon of specialised online trading days like Black Friday in this part of the world.
It’s also getting harder for retailers to protect themselves from Amazon and other new arrivals including Ikea.
How established retailers adjust and react to these themes will be key factors for investors in 2019.