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These ASX shares could benefit from the surprise lift in retail spending

A share price rally among retail stocks is helping the market stay in the black this afternoon following the release of the latest consumer spending data from the government.

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is just about keeping its head above water at the time of writing as weakness among bank stocks like Commonwealth Bank of Australia (ASX: CBA) and mining companies like Rio Tinto Limited (ASX: RIO) was offset by a 0.7% gain in the consumer discretionary sector.

The outlook for retail has brightened as the Australian Bureau of Statistics (ABS) unveiled a better-than-expected 0.4% increase in retail turnover (seasonally adjusted) for June 2018. This is the same pace as the previous month and it defied economists’ forecasts for a slowdown.

Weak wages growth, a falling housing market and rising petrol prices aren’t putting off shoppers. The reporting season may just come off better than what the market was expecting, in light of the new data.

God bless our well paid and entitlement-infused politicians! The ACT territory led the shopping charge with a seasonally adjusted 1.2% gain for the month, which was followed by a 1.1% increase in Victoria and a 0.9% improvement in Tasmania.

Who would have thought Tasmania would best New South Wales with our most populous state advancing 0.4%? It’s probably something to do with the different directions house prices are moving in those states, which means that the retail party may not last!

The fall in home prices is accelerating and we can’t see the bottom yet. I don’t think we should call the strength in retail a “renaissance” by any stretch of the imagination.

However, what the data does highlight is that there are opportunities in the sector even amid the uncertain economic climate, and the performance of consumer-facing stocks today provides clues on the studs and the duds.

The studs are those facing cyclical risks linked to the economic cycle, while the duds are those that are under structural stress from the online shopping onslaught.

This explains today’s share price weakness of Harvey Norman Holdings Limited (ASX: HVN), JB Hi-Fi Limited (ASX: JBH) and Super Retail Group Ltd (ASX: SUL); while the strong brand positioning of Premier Investments Limited (ASX: PMV) and online retailers Kogan.com Ltd (ASX: KGN) and Webjet Limited (ASX: WEB) are flying ahead.

Those looking for another way to capitalise on the trend may want to look at consumer financing business Afterpay Touch Group Ltd (ASX: APT) too as it’s another business that is not only relatively immune from the online shopping threat that’s personified by Amazon.com but is probably a beneficiary as well.

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Motley Fool contributor Brendon Lau owns shares of Rio Tinto Ltd. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Kogan.com ltd and Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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