Some of our best loved ASX-listed retailers could be facing bleak times in 2019 even if Australia manages to stave off a recession for the 28th consecutive year.
The risk to the sector hasn't fazed investors with the retail sector outperforming the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) as the Harvey Norman Holdings Limited (ASX: HVN) share price, Woolworths Group Ltd (ASX: WOW) share price and Premier Investments Limited (ASX: PMV) share price recorded gains of 0.5% or more.
The latest survey by Macquarie Group Ltd (ASX: MQG) of around 30 unlisted retailers with a total of circa 2,300 stores and a separate report by the Australian Financial Review that the Hayne Royal Commission and falling house prices are negatively impacting on consumer spending don't bode well for the sector.
Retail survey
Macquarie found that nearly two-thirds of retailers it approached were forecasting lower profits this year and the negative sentiment was particularly pronounced among the larger retailers surveyed.
"Reduced sales volumes were cited in ~33% of responses causing the greatest pressure on margins, ahead of rent (26%) and wages (22%)," said Macquarie in a note released yesterday.
"Interestingly, deflation appears to be easing with only 11% of retailers calling out price deflation as a key pressure on margins, compared to 22% in the pcp [previous corresponding period]."
Falling sales volumes could be driven by online competition with 52% of respondents anticipating online rivals to hurt their profitability.
No online retailer was specifically mentioned but the response is a marked change from previous surveys done by other parties last year in the wake of Amazon.com's entry into the local market.
Back then, most Australian retailers indicated no negative impact from the online shopping giant.
Categories most at risk
The weakness across the sector isn't expected to be uniform either. Macquarie found that Apparel is particularly weak, while food and liquor was mixed and electronics a bright spot (although the sample size for the latter category was small).
If the results are anything to go by, the JB Hi-Fi Limited (ASX: JBH) share price and Harvey Norman share price may see better days ahead.
However, the bigger losers could be shopping centre stocks such as the UNIBALWEST/IDR UNRESTR (ASX: URW) share price and Stockland Corporation Ltd (ASX: SGP) share price.
Macquarie's survey found that only 7% of large retailers in the survey intended to increase floor space in 2019 compared to 61% back in 2014, while nearly a quarter wanted to reduce floor space in the next 12 months.
