Why retail profits are still strong
When the cost of living is rising and some households are worried about rising interest rates, we’ll all be slamming our wallets shut and steering clear of the shops, right?
If recently announced profits are anything to go by, the answer to that question is ‘‘no’’.
Publicly listed retail companies have had strong sales in the first quarter of the financial year, perplexing some analysts.
Here’s what’s happening at some of the country’s most well-known retailers.
Kathmandu
Outdoor equipment, clothing and apparel company Kathmandu Brands, owner of retail chains Kathmandu and Rip Curl, increased its sales by more than 61% in the 14 weeks to November 6. Its underlying profit increased by $30 million in the first quarter of of the 2023 financial year. Sales at the Kathmandu brand increased by 107% in that period while sales at surf and streetwear brand Rip Curl increased 30%.
The Warehouse
Meanwhile, The Warehouse Group, the company behind The Warehouse, Stationery Warehouse, Noel Leeming and Torpedo7, increased its earnings by 22% or $134m to $764m in its own first-quarter period. Red shed retailer The Warehouse posted record sales of $414m in the 13 weeks, up 39% on the same time last year – boosted by a 76%
Briscoe
Briscoe Group, the owner of Briscoes and Rebel Sport, which runs on a different financial year timeline, posted sales revenue of $175m, a 26% increase in the 13 weeks to October 30. Its revenue increase was driven by a 32% rise in sporting goods sales and 23% rise in homewares sales.
What’s behind sales boost?
Hobson Wealth investment strategist Ed Glennie said rising big-box retailer revenue was an interesting trend given the inflationary environment New Zealand found itself in and as costs had continued to rise through the year.
‘‘I think there’s an element where people still feel that postCovid desire of ‘I hadn’t been able to spend like I wanted to, I want to get out and spend’ and I think they are still in that transitional phase,’’ Glennie said. ‘‘It is a bit perplexing but perhaps people still feel like if they don’t get it now they might not be able to get it at all, so perhaps that is making them rush out to buy.’’
Lockdowns last year would have muted sales in the previous year’s first-quarter periods which made those retailers’ sales look more impressive to date, he said.
Sales at Kathmandu had been buoyed by stronger demand in Australia, and a long wet winter and spring would have been beneficial for Kathmandu’s seasonal apparel sales, he said.
The Warehouse’s recent strong result was driven largely by its push into grocery retailing, with the likes of it $5 blocks of butter bringing people through its doors.
Strong sales results at listed retailers could also be attributed to these companies being household names and perceived to be trusted brands with low cost goods.
‘‘Consumers are looking for value and possibly they are trading down.’’
Reserve Bank’s challenge
Glennie said shopping centre owner Kiwi Property had also reported an increase in sales and strong foot traffic into its centres in previous months; another indication that the desire to shop had not yet slowed despite the rising cost of living.
‘‘This is the challenge for the Reserve Bank; there is still a lot of demand, and there is a portion of people that as their interest rates get reset will have less disposable income, but at the moment we’re not seeing a let-up in spending.’’
Glennie said continued spending could also be fuelled by fears of rising costs and the costs of goods increasing, encouraging people to buy now rather than later when prices were higher. Slowing sales were not likely to wash through into large retail companies’ results until April next year after the Christmas shopping season. ‘‘Things still feel pretty buoyant.’’
But economists say retail spending has softened in recent months, and there is likely to be a pullback in spending in the new year after the Christmas trading period, and once revised interest rates on mortgages take effect for more people.
Kiwibank believes spending has held up until now because of record low levels of unemployment and people feeling secure in their jobs.
Stats NZ data showed total electronic card spending up 1% in October compared with September this year, when adjusted for seasonal effects. It was the third month in a row with an increase.