Retail’s sluggish start to 2017

discount, 25 per cent, saleRetail sales have had a slow start to the 2017 calendar year, as “promotional fatigue” from a competitive Christmas continues to weigh on customers, Citi analysis indicates.

Speaking to reporters on Tuesday, Citi’s head of research ANZ and lead consumer analyst, Craig Woolford, said that indications thus far show that although major retailers may finish HY17 with a bit of momentum, they will be cautious about the calendar year ahead.

“Last year we had Black Friday sales and earlier promotion in December, if you wanted to buy something for summer you’d probably have already bought it by Christmas – so January has been quiet sluggish,” Woolford said.

According to Citi forecasts updated to the last week of January, seven out of eleven large ASX listed retailers tracked by analysts are expected to ‘miss’ their expected NPAT in the upcoming February/March reporting season.

Apparel and accessories retailers are finding it particularly difficult, with analysts tipping both Specialty Fashion Group and Oroton to record results below their HY16 profits.

Whilst Woolford says Lovisa have exhibited some positive signs, the increasing prevalence of international competition is expected to continue to weigh on Australian brands.

Retail analyst and partner at PwC, Paddy Carney, told Inside Retail on Monday that even the large ASX-listed retailers are struggling to find the scale to compete with the likes of H&M, Zara and Uniqlo.

“I’m very down on the fashion and accessories segment, that’s particularly challenging,” Carney said. “It’s a challenge if you are just a purely Australian retailer, because you just haven’t got the economies of scale to compete with the big international players.”

Electronics and homewares have been the standouts, with both JB Hi-Fi and Harvey Norman set to ‘beat’ expectations, driven by strength in the housing market.

Housing activity alongside the dollar were singled out as drivers behind price inflation in discretionary retail over the last 18 months, leading Woolford to draw a line between the category and food retailing.

“Retail has quiet divergent trends around demand growth overall […] might be at a point of inflection there,” Woolford explained.

“Too much emphasis is placed on Aldi and not enough on just broad based soft commodity price deflation,” he added.

However, both Woolford and Carney expect that incentives to increase discretionary retail prices moving through 2017 are fading, with housing activity showing signs of a “significant slowdown” and soft commodity prices starting to rise.

“As we move through calendar 17 we’re likely to see a gradual shift back towards food retailing accelerating to some extent,” Woolford said.

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