ASX-listed retailers could be in for a 2019 shock no thanks to Afterpay Touch Group Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) as the "buy now, pay later" sector have contributed significantly to sales growth I 2018, according to UBS.
Questions about whether the sales uplift can be sustained isn't necessarily bad news for the Afterpay share price, but it could pose a headwind for stocks like the Kathmandu Holdings Ltd (ASX: KMD) share price, Premier Investments Limited (ASX: PMV) share price and Wesfarmers Ltd (ASX: WES) share price.
Non-food retail sales have grown by more than feared at 2.9% since the start of this financial year even as consumers dipping into their savings to fund spending. The national savings rate has fallen to around 3.5% from around the 5.8% average over the past 10 years.
Double-edged sword
"We believe availability of alternative credit, namely the buy now pay later options of APT and Z1P have in part fuelled this," said UBS.
"APT noted c23% of customers would not have purchased if not for the service, equivalent to ~15% of the y/y growth (0.3ppts). We believe these models may have fuelled sales that otherwise may not have occurred in a part of the market that previously did not have access to credit."
"This may be difficult to cycle in 2019, creating risk to listed retailers."
UBS believes that the retailers that enjoyed the circa 15% sales boost from Afterpay or Zip Money include Kathmandu, Premier Investments, Wesfarmers, Super Retail Group Ltd (ASX: SUL), Adairs Ltd (ASX: ADH), Kogan.com Ltd (ASX: KGN) and Myer Holdings Ltd (ASX: MYR).
What this means is that these retailers could report lower sales growth in the new year as the one-off boost to their top-line from the new sales channel created by APT and Z1P isn't repeated.
Retail buying opportunities
But this isn't the time to panic.
"We remain cautious on the consumer having recently cut forecasts across the sector, but believe this is largely in the price, assuming we do not move to a credit crunch scenario," said UBS.
Having said that, the broker favours retailers with defensive characteristics, such as the supermarket giant Woolworths Group Ltd (ASX: WOW) share price and fresh food distributor Costa Group Holdings Ltd (ASX: CGC).
UBS also lists Premier Investments as a key buy for its overseas expansion (assuming Brexit doesn't derail its growth ambitions) and highlights the attractive valuations for Super Retail and Adairs.
