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Brambles’ latest research suggests retail environment may be improving

Global pallet pooling solutions company Brambles (ASX: BXB) has a unique insight into the demand for consumable  goods thanks to the integral part its CHEP pallets play in many supply chains throughout Australia and the world. With clients including Procter & Gamble, Kellogg’s and Kraft, CHEP handles some of the world’s most popular fast moving consumer goods.

Each quarter, Brambles pallet business CHEP, in conjunction with the Australian Food and Grocery Council (AFGC), compiles the AFGC CHEP Retail Index, an economic indicator based on CHEP Australia pallet movements. The AFGC is Australia’s peak representative of the food, beverage and grocery manufacturing industry, representing over $110 billion in sales.

According to Deloitte Analytics, which analyses the data on behalf of the AFGC and CHEP, the index “has shown a significant correlation with the retail trade figure three months ahead.”

The latest quarterly results data shows that the declining growth trend in retail sales continued through the June quarter; importantly the Index “predicts the rate of year-on-year growth will increase in the coming September quarter.” According to the Index, after retail trade growth of 2.6% in the June quarter, growth should pick up to 2.8% during the September quarter.

The results of the index suggest things are getting better rather than worse. That’s good news for consumer discretionary retailers such as The Reject Shop (ASX: TRS) through to food and grocery retailers and manufacturers such as Metcash (ASX: MTS) and Coca-Cola Amatil (ASX: CCL).

Foolish takeaway

Not all retailers appear to be benefiting equally from the improved outlook. Clothing retailers and department stores continue to be under stress, while household goods, food and grocery appear to be improving.

With those factors in mind investors may choose to focus their attention on the retail sectors that appear to be best placed to grow, but on the other hand there may be better value to be found in the poorest performing sectors of clothing retailers and department stores.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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