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What’s next for the ASX retail sector?

Retailers are hoping rent reductions will ease the pain of a horror run of events that have cut sales as the ASX retail sector continues to struggle. The bushfires, coronavirus, and consumer hesitance to spend have combined to reduce shopper numbers as the retail apocalypse continues.

Retailers turning to rental relief

Russell Zimmerman, the executive director of the Australian Retailers Association, has lobbied for assistance from landlords but told The Australian there was no support for industry-wide assistance.

Shopping Centre Council executive director Angus Nardi also told The Australian that the shopping center industry’s operating metrics were positive overall, and called on tenants to discuss rent issues with landlords directly. 

Drops in shopping centre foot traffic caused by bushfire smoke haze and coronavirus fears have been reported, with Vicinity Centres (ASX: VCX) last week warning that second-half performance was expected to be impacted. When Vicinity recently announced its FY20 interim results, CEO Grant Kelly advised, “we have seen a material decline in foot traffic at some of our centres since late January 2020, particularly where there is a high proportion of international visitors, which in turn is impacting sales.”

Some retailers are succeeding in the drive for rental relief, Adairs Ltd (ASX: ADH) chief executive officer Mark Ronan advising the company has successfully lobbied for cheaper rent in locations where foot traffic has dropped significantly. “In centres where we are seeing that foot traffic decline, like every other retailer out there, we are pushing for those rent reductions and in most instances getting the rent reduction we are looking for,” he told The Australian

The decline in tourist numbers attributed to coronavirus plus diminishing foot traffic has resulted in some shopping centres resembling “a morgue” according to Zimmerman. “I have heard figures of up to 20% falls in traffic, and that depends on individual retailers, and depends on what business they are in, but certainly we are hearing some pretty horrific stories,” Zimmerman told The Australian

Fallout from the retail apocalypse

It is certainly a torrid time for Australian retail with a slew of brands collapsing and shutting up shop over the past year. Since the start of 2020, Jeanswest, Colette by Colette Hayman, and Ishka have collapsed. They follow Bardot, Harris Scarfe, Napoleon Perdis, Ed Harry, Shoes of Prey, and the Co-Op Bookshop which all collapsed last year.  

Online retailers may be faring better. Online-only homewares retailer Temple & Webster Group Ltd (ASX: TPW) reported a 50% increase in half-year revenue last week. The retailer is benefiting from demographic changes as millennials, who are comfortable shopping online, move into the prime homewares-buying age range. 

Bricks and mortar retailer JB Hi-Fi Limited (ASX: JBH) recently reported 18.3% growth in Australian online sales in 1H19, with online sales now accounting for 6.3% of total sales. Last week, Accent Group Ltd (ASX: AX1) recorded a 33% increase in digital sales in the first half, while Adairs saw online sales increase 31.6% to make up 18% of total sales. 

Foolish takeaway 

There is no easy solution in sight for Aussie retailers struggling under reduced custom and rising costs. While landlords are understandably hesitant to offer reduced rent, slow spending may yet send more retailers to the wall. 

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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Accent Group. 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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Kate O'Brien