How will ASX retail shares fare when JobKeeper winds down?

JobKeeper has put a lot of extra money into consumers’ pockets. When the scheme ends on 28 March, will ASX retail shares suffer?

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A man shuffles coinc out of his empty wallet, indicating there is no shopping money left for retail shares

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In a pandemic, everyone’s a socialist.

So quipped conservative pundits from the United States to Australia, and indeed across the globe, as COVID-19 saw governments of all stripes open the spending taps to support their stricken economies.

Will ASX retail shares take a hit with JobKeeper ending?

Here in Australia, the government passed several crucial fiscal relief packages. It worked alongside the Reserve Bank of Australia (RBA), which slashed interest rates to 0.10% and initiated a record quantitative easing (QE) program to keep borrowing costs low.

Among the hallmarks of the government’s support program was JobKeeper. Although the program is catching some flak for seeing some of its funds supporting higher company profits (and boosting some executive paycheques), it helped as many as 1.5 million Aussies hold onto their employment.

In so doing, it also put a lot of extra money into consumer’s pockets – extra money which offered a nice tailwind to many ASX retail shares.

But the pandemic relief scheme is coming to an end on 28 March. And with it, consumer spending may slump.

How the Reject Shop is preparing for the end to JobKeeper

The Reject Shop Ltd (ASX: TRS), Australia’s largest discount variety store, didn’t get any JobKeeper aid itself. However, many of its customers did, and the extra money almost certainly helped lift sales.

With JobKeeper slated to end in less than 2 weeks, Reject Shop CEO Andre Reich says he’s already seen a change in customer spending habits.

As the Australian Financial Review reports, Reich said:

It feels like customers are already becoming more prudent in terms of their spending – we’ve definitely seen that change in the last month. Everyone is aware something will happen when JobKeeper comes off.

The Reject Shop may fare better than some higher-end ASX retail shares, with its selection of bargain-priced items.

Reich said, “Our plan is to capitalise on those who are more challenged in the next six to 12 months. We’re setting our business up to take advantage of that and to serve more customers with products they need.”

The AFR reported that the Reject Shop is also working with landlords to reduce rents. According to Reich:

We’re starting to see rents come down but it’s not a material number at this stage. As we get through the latter half of this year, vacancy rates will probably increase in shopping centres, so rental deals will become better.

The company is also planning to continue its new and successful push into online retailing, which it only launched after the pandemic outbreak. Reich said, “We hadn’t considered online in our business until COVID, so it’s been a remarkable turnaround in such a short space of time.”

The Reject Shop share price snapshot

After a morning in the red and a slightly more positive afternoon of trading, the Reject Shop share price is currently inching lower, down 0.32% at $6.26.

Over the past 12 months, Reject Shop shares have soared 122%. That compares to a gain of 37% on the All Ordinaries Index (ASX: XAO). So far in 2021, the Reject Shop share price is down 8%.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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