ASX retail stocks may come under pressure as we head into the all-important Christmas trading season as expectations for a spending boost starts to fade.
The latest Deloitte Christmas Survey found that only 62% of retailers are expecting higher sales during the festive season compared to 80% of retailers last year, reported the Australian Financial Review.
It's hard to feel too pessimistic towards many of our leading consumer stocks as they have continually outperformed through a difficult year. The JB Hi-Fi Limited (ASX: JBH) share price is one of the standouts with a more than 50% gain over the past 12-months.
Other notable outperformers include the Breville Group Ltd (ASX: BRG) share price with its 35% jump and the Premier Investments Limited (ASX: PMV) and Wesfarmers Ltd (ASX: WES) share prices which rallied around 20% each.
In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index "only" increased by 15% over the same period.
Strong run among retail shares under threat
But some of the gloss may come off the sector heading into December if consumers are as gloomy as the Deloitte survey suggests.
The national leader of Deloitte's retail, wholesale and distribution division, David White, noted that retailers haven't been this pessimistic since 2013!
Of the retailers responding to the survey, 40% expect margins to compress during Christmas while 39% intend to cut prices before Christmas to boost sales. This compares to 31% of retailers last year.
Margin pressure and weakening consumer confidence
What's more, the outlook for 2020 also darkened somewhat with 72% of retailers believing they can achieve sales growth next year, which is well down from the 90% in the last survey.
The survey is the latest gloomy snapshot for the sector. The ANZ-Roy Morgan Consumer Confidence index released this week fell 2.1% to 111.1 points. The long-term average since 1990 is 113.1 points.
The consumer spending boost from the federal government's tax cut and falling interest rates have done little for retailers. Consumers are either choosing to save the extra cash or spend it buying property.
The weak Australian dollar is also probably a drag on profits for our retailers as many have to purchase goods in US dollars.
Residential market brings hope for some
House prices in Melbourne and Sydney have rebounded strongly in recent times with experts predicting new record highs for these markets before the middle of 2020.
But rising home sales may provide a much-needed fillip for furniture retailers like Nick Scali Limited (ASX: NCK) as there is a link between property turnover and furniture sales.
Retailers and their shareholders will be hoping we aren't in for a blue Christmas this year.
