Bricks-and-mortar retail has always been a staple of Australian life, and by extension, Australian share portfolios. But since 2018 all I've seen is more and more headwinds for Australian retailers and this has been reflected in the share price performance of some of Australia's biggest retailers and real estate investment trusts (REITs).
Why is the Retail sector performing poorly?
Globally, we're seeing a trend of slowing economic growth which is translating to more bearish consumers and lower consumption. This economic cycle looks to have peaked or is arguably just at the end of its peak, and this lower consumption, combined with a move towards online marketplaces such as Amazon.com Inc. (NASDAQ: AMZN) and Kogan.com Ltd (ASX: KGN), has seen Aussie retailers falter.
Which companies' share prices have struggled in 2019?
The Woolworths Group Ltd (ASX: WOW) share price is up just 3.77% year-to-date (YTD) while the Coles Group Ltd (ASX: COL) share price is down 2.48%, well short of the 11.62% YTD gain posted by the S&P/ASX200 Index (ASX: XJO). The ever-troubled Myer Holdings Ltd (ASX: MYR) jumped 23% last week following its profit rebound in its half-year results on Wednesday but has otherwise been flat in a disappointing start to the year.
In the REIT space, the news hasn't been much better, with retail REITs including the Shopping Centres Australasia Property Group Re Ltd (ASX: SCP) and Vicinity Centres Re Ltd (ASX: VCX) share prices, down 2.37% and 0.01% for the year, respectively.
What's the outlook for 2019?
On the surface, these numbers probably wouldn't worry too many investors. However, it's more the macro environment than the micro that would be making me a little nervous if I held significant retail exposure in my retirement portfolio.
While there are several blue-chip names that have seen their share prices trade flat or slightly higher in the early part of this year, I think investors are in for a little more pain, particularly if the broader Australian and/or global market experiences a correction or downturn.
We've seen data from the Reserve Bank of Australia miss estimates by quite some way in recent months and a continued stream of Aussie retailers folding under margin compression and greater online competition, which I think points to the fact there could be some more big names to go under in the next 12-24 months.
Should I keep my retail shares?
While things aren't exactly dire for the Retail sector at the minute, it's certainly worth reviewing exposures to all industries as we arguably reach the latter stages of the economic cycle in the coming months or years. I am a big fan of some countercyclical exposure at this point, including the likes of AGL Energy Limited (ASX: AGL) or even the likes of Altium Limited (ASX: ALU) in the tech space.
