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Topshop flop spells trouble for Myer Holdings Ltd & retail investors

The Myer Holdings Ltd (ASX: MYR) share price is down 6% to a record low of 86 cents today after the group confirmed the shock news that its UK fast-fashion concession operator Topshop / Topman has called in the administrators.

Myer holds a 20% interest in the Topshop franchise and Myer’s British CEO has based much of the department store’s transformation strategy on bringing in “wanted” brands such as Topshop in an attempt to kickstart sales and attract the fast-fashion loving youth market.

In the UK, Topshop’s blockbuster success made its founder into one of the country’s top 5 richest individuals and the franchisor was generally considered a bulletproof license to print money, which means it’s no surprise its failure here has sent Myer shares to record lows.

I must admit I thought Myer might be a reasonable turnaround bet myself a few months ago, but not anymore as retail shares get sold off across the ASX boards today in response to the news.

Myer is not alone in struggling as a retailer over 2017, with others from designer goods retailer Oroton Group Ltd (ASX: ORL) to high street retailer PAS Group Ltd (ASX: PGR), or footwear leader RCG Corporation Ltd (ASX: RCG) coming out with profit warnings in recent months.

Other formerly popular brand names such as Marcs and David Lawrence have gone to the wall completely.

So what’s going on in the retail sector?

Two problems.

First, real wage growth has been diabolical across Australia for many years now and this means consumers have less real purchasing power once adjusted for inflation.

Second, is too much debt.

Property prices have now peaked and the wealth effect via rising household wealth has run out of steam. In fact many households now find themselves overly indebted to the banks via the heavy mortgage borrowing that sparked the rising house prices as the economic cycle turns.

Increased consumer or household debt and the start of a lending-rate-hiking cycle means you might want to avoid all but the very best retail shares going forward.

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