The monthly AFGC CHEP Retail Index is out, accompanied by the headline 'Challenging Christmas in store for retailers.'
The Index is a market indicator that brings together the insights from the Australian Food and Grocery Council (AFGC), who represents Australia's $111 billion food and grocery manufacturing sector, and CHEP, a pooling solutions division of Brambles (ASX: BXB), which provides significant pallet moving data based on its association with 10,000 customer accounts across Australia. Together these two organisations have significant insights into the retail market, which makes this Index one to follow closely.
The latest Index release "suggests that year-on-year growth in retail sales is slowing, and that a turnaround is not expected in the remaining months of this year." These expectations follow a downward trend that has been evident in the Index since September 2012, with the latest data pointing towards a challenging upcoming Christmas trading period.
Once again it is the consumer discretionary sector that is bearing the brunt of lacklustre sales growth, with food retailers performing the best. The decline is also particularly evident in Western Australian where the economy is still adjusting to the slow down from the mining boom. According to Australian Bureau of Statistics retail data, sales growth in WA slowed from 10% to below 2% in the past year. In other states the growth rates have ranged between 1% and 3%.
The AFGC CHEP Retail Index's findings confirm what investors are seeing amongst reports from retailers. Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) and their respective supermarket chains continue to perform well while their discount department stores – which are more exposed to the discretionary dollar — are finding it tougher going. Likewise food retailers such as Retail Food Group (ASX: RFG) and Domino's Pizza (ASX: DMP) continue to report impressive sales growth figures.
As Warren Buffett says, its only when the tide goes out that you see who has been swimming naked! The stock market rally appears to be raising all boats, including discretionary retail stocks; however with the current data pointing towards further tough times ahead, investors should be careful about forecasting a strong rebound in discretionary sales any time soon.