BUCKETS OF CASH
AUSTRALIAN consumers are sitting on an estimated $240bn in savings built up during the pandemic – stuffed in bank accounts, mortgage offsets, wallets, handbags and likely too in the odd coin jar.
To put the historic pent-up savings figure in some context, that bulging pile of accumulated cash is six times the total amount of money spent each year at Woolworths supermarkets, or equivalent to twothirds of the $350bn spent at all the shops in the nation in a single year.
It’s a staggering amount of money and, not surprisingly, the retail sector is licking its lips at the prospect of Australian consumers finally letting go of the purse strings.
Sure, some of that pent-up savings will find its way into overseas trips as international borders are reopened and some will remain in savings for a rainy day – which could come soon as inflation bites and interest rates rise – but plenty will be spent at retailers.
Barrenjoey analyst Tom Kierath believes the consumer, while cashed-up, is still cautious given the backdrop of geopolitical events, rising fuel prices and general uncertainty about the future.
But that money will start to get spent nonetheless.
“We say around a total of $400bn was saved up since the start of the pandemic, which I think is more than we saved in the 2000s, so from 2000 to 2010. So the consumers have saved a lot, asset prices are up, like equity markets, house prices are up and I think people feel pretty happy with their finances.
“And so I think you will see a draw down on the savings that people had, and that should help as people will spend more on holidays and things as the borders open up and people become more comfortable with that but I think people will continue to spend in a bunch of these retail categories,” Mr Kierath said.
Many analysts have nominated consumer electronics giant JB Hi-Fi, Harvey Norman, Solomon Lew’s Premier Investments fashion empire as well as defensives such as grocery, liquor and hardware wholesaler Metcash as their top picks for 2022.
Mr Kierath said his firm believed there was still more uncertainty now than when companies, and the retail sector, reported their half-year results in February given what has happened with petrol prices and the US Federal Reserve hiking rates.
“What we are telling investors is take a pretty balanced approach with the consumer sector, you don’t want to necessarily own all the companies. The ones that we prefer are Woolworths, it’s a great defensive, resilient business that should benefit from inflation.
“Harvey Norman has an exposure to the housing cycle and then Metcash, through its hardware business, that’s very well placed on the trade (professional tradesmen) side.”
Armytage Private portfolio manager Bradley King likes consumer electronics and whitegoods retailers JB Hi-Fi, which also owns The Good Guys, and Harvey Norman as insurance cheques from the floods across New South Wales and Queensland begin to roll in and households begin to rebuild their lives and fit out their homes.
“Once those rebuilds go through it should do well for companies like JB Hi-Fi, Harvey Norman,” he said.
Mr King also said a look at the birth data could point to an upbeat 2022 for baby and infant goods retailer Baby Bunting.
JP Morgan analyst Bryan Raymond said the retailers that thrived as the retail environment shifted online were Premier Investments, JB Hi-Fi and Harvey Norman.
“And for me it’s really two stocks which are continuing to do well, JB Hi-Fi and Premier Investments – they are my two stock picks,” he said.
“The uplift in (Premier’s) profitability is the result of the shift to the more profitable online channel, as well as their ability to remove costs in the declining bricks and mortar channel. This cost reduction strategy has been driven by rent renegotiations with landlords.
“In addition we rank Metcash and Super Retail highly.”
Interestingly, the pure play online retailers such as Kogan.com, Adore Beauty and Temple & Webster are beginning to be overshadowed by the old fashioned retailers that have a legacy of bricks and mortar stores but are also increasingly and successfully pivoting to online.
The key question now lingering for 2022 is the impact of higher petrol prices on the consumer, with JP Morgan estimating it will have a cost impact of about $30 a week on the average household. Where that money is saved and which retailers will miss out as budgets are cut could be a key theme for the rest of the year.