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How will coronavirus impact ASX retail shares?

So far it has been well documented on how the coronavirus epidemic will impact companies that rely heavily on Chinese demand and airliners that have had to cut capacities.

However, with the virus reducing the number of tourists and customers looking to avoid shopping malls, how will ASX retail shares fare?

Peak body sends warning

Earlier this month, the Australian Bureau of Statistics (ABS) released trade data revealing that the retail sector had experienced its worst-ever December-January trading period.

The data showed that overall sales had dropped 0.3% after analysts expected no decline for the period.

This data sends a stark warning to discretionary retailers who are set to suffer from a sharp decline in foot traffic. This follows the Government’s recommendation to suspend non-essential gatherings of more than 500 people in a bid to curb the potential spread of the virus.

The ABS expects the coronavirus to impact retail trade in the coming months. This follows the warning from economists at the Commonwealth Bank of Australia (ASX: CBA) who predict that the virus will weigh significantly on aggregate demand for February and March. 

Which ASX retailers could be at risk?

Department stores like Myer Holdings Ltd (ASX: MYR) would be at the top of the firing line.

The struggling retailer reported a 36.5% decline in its half-year profits for FY20, citing restructuring and redundancy costs for its poor performance.

With reduced foot traffic at department stores and potential supply chain problems in China, Myer could struggle during the coronavirus pandemic.

Retailers could also face operational issues if staff members are required to self-isolate.

Recently, retail conglomerate Wesfarmers Ltd (ASX: WES) announced that casual workers will be paid up to 2 weeks in wages if self-isolation results in missing shifts.

Wesfarmers owns retail stores such as Kmart, Target, Officeworks and Bunnings which employ thousand of casual workers.

The recent announcement by Flight Centre Travel Group Ltd (ASX: FLT) to shut down 100 leisure shops reflects the vulnerability of bricks and mortar stores particularly in the tourism industry.

Flight Centre has been hit hard by the coronavirus pandemic, forcing the company to suspend its guidance for FY20.

Foolish takeaway

Following a traumatic 6 months with the country being ravaged by bushfires and now having to deal with the coronavirus pandemic, retailers on the ASX have not had it easy.

Unfortunately, the outlook for discretionary retailers remains cautious as they face a new challenge of not only reduced foot traffic but also challenges to supply chains in China.

However, you could still profit from retail stocks by buying consumer staple stocks such as Coles Group Ltd (ASX: COL).

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. 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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