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Will coronavirus kill ASX retail shares?

As ASX retail shares continue to close stores, the latest round of government restrictions could sound a death knell for the retail industry, according to one economist.

The already battered industry was struggling even before the coronavirus pandemic and will be hit even harder by the newest round of government restrictions. 

Body blow for ASX retail shares

From today, Australians have been told not to go out to shop for anything but essentials, dealing yet another shock to the shaky retail sector. “Retailers were already struggling, and this is another body blow to them,” AMP Chief Economist Dr Shane Oliver told news.com.au.  

There are fears that retailers forced into ‘temporary’ closure by coronavirus restrictions may never reopen. “We were already hearing stories of retailers folding over the last half year, reflecting slower growth in the Australian economy,” Oliver said.

ASX retail shares that have closed stores in the face of the coronavirus threat include Myer Holdings Ltd (ASX: MYR), Premier Investments Limited (ASX: PMV), Adairs Ltd (ASX: ADH), Accent Group Ltd (ASX: AX1), Lovisa Holdings Ltd (ASX: LOV), and Kathmandu Holdings Ltd (ASX: KMD)

Queensland University of Technology retail expert Dr Gary Mortimer told news.com.au the latest restrictions would put even more pressure on retail spending. “At the start of the year we saw a number of big brands go into voluntary administration – and that was well before the impact of coronavirus,” he said. 

Online shopping to surge

Shopping online is set to increase with Australians increasingly restricted to their homes. This could actually compound issues for retailers without a strong online presence. 

According to Dr Oliver, current restrictions will reinforce the trend of online shopping. “More and more Australians will now move to online purchases, and while some retailers that already have a good online presence to complement their physical stores will benefit, those that haven’t will struggle more,” he said. 

ASX retail shares such as Myer, Kathmandu, Adairs, and Accent Group are all continuing to operate online. Adairs already makes significant sales through its online channel, with the retailer expecting online sales to rise to 29% of all sales even prior to the physical store shutdown. 

Accent Group grew digital sales by 33% during H1FY20, following growth of 94% in H1FY19. Myer also reported strong growth in online sales with its half-year results. But while online sales will contribute during closures, retailers will also face issues when they reopen. 

Excess inventory 

A backlog of inventory will need to be cleared, likely leading to deep discounts. Winter stock will need to be shifted to make way for spring ranges with fashion, footwear and accessories brands most at risk. Some retailers, however, are still seeing strong demand. 

Supermarkets, electronics and stationery retailers are doing brisk business as consumers stock up on food and office supplies. The move towards spending increased time and working from home has benefited the likes of Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW), and JB Hi-Fi Ltd (ASX: JBH)

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. 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