S&P/ASX 200 Index (ASX: XJO) retail shares are down 14% in 2026 amid increasing headwinds for the sector.
The most concerning factor for consumer discretionary retailers right now is falling consumer sentiment.
And it's no surprise that Aussies are feeling pessimistic and tightening their purse strings.
Image source: Getty Images
What's bringing consumers down?
The Reserve Bank has raised interest rates three times this year amid resurgent inflation exacerbated by the global oil shock.
The Westpac–Melbourne Institute Consumer Sentiment Index fell to an "extreme low" of 80.1 in April due to the Iran war.
That was the worst result since the pandemic, and there was only a small uptick of 3.5% this month.
Matthew Hassan, Head of Australian Macro-Forecasting at Westpac Banking Corp (ASX: WBC), said:
Despite a small improvement, consumers remain deeply pessimistic.
Forward views are clearly still being weighed down by uncertainty around global energy supply with the Strait of Hormuz still effectively shut.
However, rate rise fears are also in the mix.
Hassan said consumers expect variable home loan rates to rise further.
Even with three hikes already done this year, 85% of consumers still expect mortgage rates to increase further over the next 12 months.
That is closer to 90% across consumers with a mortgage.
Impact of the Federal Budget
Hassan said the personal impact of the Federal Budget for consumers was "very mixed", according to this month's survey.
Key announcements included proposed changes to capital gains tax (CGT) on all assets, including property, shares, and businesses.
Hassan said:
Among 'baby boomers' and 'Generation X', those expecting to be worse off outnumbered those expecting to benefit by 30–36% compared with a gap of just 9% for 'Millennials' and small net positive spread (+1%) among 'Generation Z' (or 'zoomers').
This week, the market was also surprised by weaker-than-expected jobs data, with unemployment lifting from 4.3% to 4.5%.
Commonwealth Bank of Australia (ASX: CBA) Senior Economist Ashwin Clarke was expecting employment to rise by 15,000 people.
Instead, employment decreased by 18,600 people in April.
Broker cuts price targets on 5 ASX retail shares
All of this factored into broker Jefferies slashing its 12-month share price target on ASX retail share Nick Scali Ltd (ASX: NCK) today.
The Nick Scali share price is $13.38, down 2.3% today and down 43% in the calendar year to date (YTD).
Jefferies downgraded Nick Scali shares from buy to hold and cut its target by 44% to $14 per share.
Analyst Michael Simotas forecasts lower profits ahead due to poor consumer sentiment and headwinds for the property market.
Even before the proposed CGT changes, the Australian property market had already begun to weaken on higher interest rates.
Latest data from Cotality shows a 0.6% fall in property values in Sydney and Melbourne in April and no growth in Canberra.
Last week, Sydney's preliminary clearance rate fell 6% to 49.2%, the weakest result since the early COVID period in April 2020.
Simotas said his profit forecast downgrades for the ASX retail share were due to "operating deleverage in Australia, New Zealand and U.K. due to softening macroeconomic conditions and given Nick Scali's sales are strongly correlated to housing market".
Simotas cut his FY26 net profit forecast by 8%, and said he has cut forecasts for future years by up to 30%.
Other ASX retail shares with slashed price targets
Jefferies cut its share price targets on several other ASX retail shares today.
These include fellow furniture retailer, Harvey Norman Holdings Ltd (ASX: HVN).
The Harvey Norman share price is $4.37, down 1.5% on Friday and down 38% YTD.
Jefferies downgraded its 12-month price target for this ASX retail share by 27% to $4.40 per share.
Jefferies also cut its price target on ASX travel retail share Webjet Group Ltd (ASX: WJL) by 38% to 40 cents per share.
The Webjet share price is currently 47 cents, down 2.1% today and down 47% YTD.
Wesfarmers and JB Hi-Fi shares receive price target reductions
Jefferies cut its 12-month target for Wesfarmers Ltd (ASX: WES) shares by 5.9% to $72.
The Wesfarmers share price is $74.71, down 0.1% today and down 8.6% YTD.
ASX electronics retail share JB Hi-Fi Ltd (ASX: JBH) also attracted a 6% price target cut to $75.
The JB Hi-Fi share price is $73.18, up 1.7% on Friday and down 24% YTD.
The following chart shows the share price percentage falls for these 5 ASX retail shares.
