retail bottoms

[skinny]

Like C9 I also avoided getting into NZ retail last year (except MHI). This was mainly for macro reasons : rising interest rates, slowing population growth, yadda yadda. That said its surprised me just how poorly this sector has done with NZ growth and retail sales being quite robust: its dreadful c/f what you could have got holding the big retailers in the UK (Tescos), US (Walmart) or OZ. Jeez, even Carrefour in Europe has done better despite the most surly staff I have ever come across and anemic sales growth !!!

Whats going on here ?
Surely there can't be poor management and/or company specific problems in ALL of the sector ?
Like to hear what the punters think - it it also margins compression story and can we expect recovery ?

disc: looking for a bargain ;)

[The Doctor]

Its been said many times before...NZ is 'over-shopped'...mass market retailing surely must be at 'saturation' point!Issues like Postie Plus just divide the available 'pie' in thinner wedges.Cannot personally see much growth in any retail stocks ,the competition is too intense.PRG is a 'gamble' of course looking more likely to require ever more capital ,with a future that is really impossible to predict with any degree of certainty.

[Kookaburra]

If Master Cullen is going to return a bit of our hard earned money to us then in fact retailers could do very well this year. I have thought Aus was overshopped for years yet still more get built. I am not sure that we know the threshold for excess. Spending is now recreation.

[willy_wonker]

Why, have we seen a recent female population growth?

lol :D

[thereslifeafter87]

New Zealand's (listed) retail companies are generally not that well managed - or if they are then they have already grown to such size that they no longer have many opportunities in NZ.

I'm much happier to look at OZ and companies like FAN that have excellent management, good growth opportunities, and a great track record. OZ just has a lot more space in which retailers can grow their operations.

something like 20 million people to sell stuff to as opposed to 4 million? kinda speaks for itself.

Briscoes is down the tubes, PRG is a speculative punt (about as safe as Stacey Jones going for a 40/20 at the moment :):([V])), MHI has low growth and heavy competition in NZ - will probably do well in Canada and continue to do well in OZ, WHS low growth left in NZ - can maybe turn OZ around...

All in all, not attractive prospects.

[Awryly]

Speaking of bottoms - what about Just Jeans?

TLA87 Be careful Fantastic Furniture has a fad following at moment. But how long will it last. I have looked through one of their Melbourne Stores with view to buying shares. After spending 5 minutes in store would not touch with a barge pole. Goods IMHO are absolute cr*p and there is alimit to the amount of cr*p you can sell to the market.

[Awryly]

quote:there is alimit to the amount of cr*p you can sell to the market

Where did you get that funny idea?

THE KING says lifie Briscoe is far from being down the tube as you put it.[8][8D]

[thereslifeafter87]

Enigma,
Have you had a look at FAN's performance over the last few years? Even with rising interest rates and slowing consumer spending they still grew profits by around 50% last half...

True, I haven't had a look at their stores (I am in NZ), but the results kinda speak for themselves....

Even if growth more than halves, they can probably still justify their current PE...

And if I was a chartist......... just have a look at the chart and you'll see what I mean.

[thereslifeafter87]

Maybe I was exaggerating your highness. But why bother with substandard companies with limited growth opportunities when there are great companies with fantastic (no pun intended) growth opportunities out there?

TLA87 That is why I went looking. It reminds me of a few other market Darlings that came crashing back to earth. Like a certain surf company and One called globe if my memory is correct. Just the fad of the moment. Similar packages were marketed in NZ a few years ago and went absolutely nowhere.

THE KING says lifie just give me one NZ Co`s name.:)

Regards THE KING

[willy_wonker]

I fear the NZ retail market will take some time to recover with interest rate rise, lower pop growth, increase compliance cost for business, increase labour cost, property market down...etc.

I am holding on tight and riding out the storm.

Hope National gets in this time.

THE KING says Willie you shoud be in Parliment your words inspire.
:D:D:D

Regards THE KING

[willy_wonker]

Mr KING, I am afraid I may start a WW3 if I am in parliament :D I tend to say what I think and sometimes it comes out without thinking. :D

WW allways put brain in gear before putting mouth into gear.

THE KING says Willie we know:D ,, Lifie where`s the Co name.[8D]

Regards THE KING

[skinny]

Thanks for all the comments - interesting that there was not one positive NZ retail reccomendation, the best was FAN in Australia ! If thats the sentiment I'm not going to stand in its way, perhaps the best we can hope for is that some will get oversold ;)

[thereslifeafter87]

Sorry The King...

No NZ recommendations from me.

[willy_wonker]

After looking around the retail shops in Auckland City for a few months now and talking with our commercial tenants, Willy is abit worry about the retail sector.

[skinny]

This off my friendly NZ correspondant:

Retail sales surged by 2.3% in March (up 8.6% YoY), well above expectations. For the quarter as a whole and in real terms, sales were up 2.6% (up 8.0% YoY), the strongest increase in seven years.


Are you sure they are going soft WW ;)
Its the headline numbers that make me think the (besides MHI which I own) there *must* be a good buy somewhere in the sector !

[Burgerbun]

A nice retail coktail..


Add 80% MHI as the base and throw in a little PRG for some fizz...for the next few months anyway. Top it off with some HLG for stability;)

forget the rest[:p]



BTW...WW...he doesnt know if hes charlie or the chocolate.

[clearasmud]

c9,
Don't forget Postie Plus;a well managed retailer still priced below (in PE terms) all the others

[Burgerbun]

I guess we could offer punters a PPG ice cube as an option.


Stir well and freeze for 1 year;)

[willy_wonker]

Skinny, Stats always lag behind a few months. The market acts on future, not past figures.

C9, I am a nervous investor and moves fast and furious. :D

[Capitalist]

Actually I believe investors' perceptions always lag reality :D[:I];)

As an addendum Willy, what do you suggest one invest in, if NZ market sucks, property sucks...gold bars perhaps??;)

[willy_wonker]

Cap, Cash is KING in this market - I dont mean you THE KING :). Well, in the short term until there is a clear sign of a uptrend for a certain investment. I am cashed up and waiting.

Sign is that there is further interest rate rise ahead, especially with lower $NZ and higher import prices pushing up inflation. Also, global interest rate rise is gonna put a damper on the world economy. Nothing of interest in the NZ market unless there is are takeover opportunities.

Maybe good opportunity in mid to late this year.

Willy, keeping eyes and ears open.

[winner69]

quote:Originally posted by willy_wonker


Sign is that there is further interest rate rise ahead, especially with lower $NZ and higher import prices pushing up inflation. Also, global interest rate rise is gonna put a damper on the world economy.

...Maybe good opportunity in mid to late this year.

Willy, keeping eyes and ears open.


Rising interrest rates and declining earnings growth not a good combination for equities is it Willy

If you believe both are going happening no wonder you are essentially out of the market ... but if so you will prob have to wait longer than later this year for the opportunities

Or as Cap suggests maybe gold is the answer for you

[Capitalist]

quote:Originally posted by winner69
Or as Cap suggests maybe gold is the answer for you


Don't forget art now Winner. You read the article in last week's Listeria didn't you? ;)

As Infometrics says " Even with the booming automotive retail industries excluded, retail volumes growth is smoking. If anything, consumer spending is accelerating, not slackening. "

You should see Botany Downs today. Smoking.

[winner69]

Cap - don't see many Listeria's so haven't read that article.

Agree there is real momentum in retail sales.

Even though WW says you have to look forward you can't really overlook that momentum. From Stats NZ the last 4 quarters retail sales increases over last year have been 4.2% (June 03) 5.4% (Sept) 5.4% (Dec) and a staggering 8.4% in the recent March quarter.

Retail sales are still booming and that sort of growth doesn't stop overnight.

I am always intrigued at the 'theory' around how increasing interest rates and all that sort of stuff affects retail spend - the reality is that retail spend always seems to go up ...and up.
See this chart <h6>
http://www.stats.govt.nz/domino/external/pasfull/pasfull.nsf/7cf46ae26dcb6800cc256a62000a2248/4c2567ef00247c6acc256e9300759ce7?OpenDocument</h6>

Only goes back 7 years but looks pretty good to me

[Capitalist]

Thanks--I hadn't seen that graph. It's all good.

All this stuff about increasing i-rates....with all due respect I think some of us here have to remember *why* i-rates go up. Because things are going well, not going down the toilet!!! It is only intended to take the cream off the top.

And that is all it does, as the graph illustrates.

[Burgerbun]

quote:Originally posted by cloudnine

A nice retail coktail..


Add 80% MHI as the base and throw in a little PRG for some fizz...for the next few months anyway. Top it off with some HLG for stability;)

forget the rest[:p]



well our retail coktail is tasting REALLY nice! That PPG icecube was a nice touch.
but MHI and HLG the real mixers....PRG hasnt really provided the kick I was hoping for........I might have to hit GB up for one of his debilitating rum and cokes.


......Make it a TRIPLE[8D]



BTW...WW...he doesnt know if hes charlie or the chocolate.

[Gryffyn]

The RB keeps raising rates cause the economy is going well and that looks set to continue for the rest of the year shocks notwithstanding. Some good retail bargains therefore abound.

Disc: BGR recently

[skinny]

Thought I would re-start this thread now that the bottoms are really being exposed [xx(]

Looking back over the past year its interesting that its the broad product range discounters that have really lost it in the current retail environment (WHS, MRL.AX, PPG, BGR). In contrast, the more focused and/or higher margin players have faired OK to very well (e.g. KRK, HVN.AX, MHI, SCY, PPL, FAN.AX). Disc: still hold MHI.

Going forward, when the mythical consumer slowdown finally hits NZ/Oz shores you have to wonder how the discounters will cope... if they haven't been able to make a buck when retail has been pretty solid what are they going to do when sales volumes start coming off !? Their cheaper prices might lead the more cost conscious consumer back...but even that rosy outcome could be upsurped by the likes of Progressive Ent. expanding non-food.

In short, IMHO its difficult to see the upside for the disc. retailers from here and easy to indentify the downside....I reckon their needs to be a shakeout in NZ, just not sure who will get to the bottom first...

[Halebop]

Hey Skinny,

I wonder if the lag in interest rate rises might finally have caught up with pocket books? Coupled with a very cool and wet summer retailers and rag-traders in particular are seemingly having a tougher time of it.

An irony that the high dollar gets some blame too. If demand is so inelastic to price then is this evidence it has peaked through this cycle?

Anyone overweight retail in New Zealand would be pretty brave at this point I think. Equity values in general aren't too expensive but I feel might need to take a bit of a breather anyhow. I've progressively reduced my shares and trading - currently in the unaccustomed position of being almost 90% cash. I'm happily up almost 30% this year mostly from gains secured early on but I wonder what 2005 will auger? Glad to await some bargains and forego any further capital gains for the moment.

Disc: My only positions at the moment are GCL and AFC on the ASX.

P.S. Sorry - just reread and I meandered a bit off topic there! From retail to the whole market in a paragraph.

[skinny]

Hey HB yes a bit cheeky on the other channel. Anyways, could be rate lags - timing is consistent with the estimated +2-quarters and anecdotally I know retail in the biggest mall in 'middle of the road NZ' (Hamilton) was pretty dead over the Summer.


disc: cross ramping, hold AFC too ;)

[KW]

Been cold on retail for a while - actually just exited my last retail stock (Coles Myer) this month.
The upsurge in retail spending was directly linked to the housing boom - people borrowed the rising equity in their homes to buy new furniture, entertainment electronics, holidays, cars, and other high priced items. Thats why the top end stores did better than the low end ones - everyone felt "rich", so they spent like a rich person.
The housing boom is over and everyone is mortgaged to the hilt. Interest rates and petrol prices have risen, reducing disposable incomes, and making it much harder to afford the bigger mortgage borrowings. So everyone is having to tighten their belts.
So while NZ and OZ consumers are in debt up to (and over) their eyeballs (some 120% of household income) the outlook for retailers isnt very good.
Worse is yet to come - see Millers Retail in OZ has just put out a profit downgrade and suspended dividends? They compete directly with the Warehouse here, so chances are WHS has some bad news on the way as well.
Blaming cold summers or hot winters, or currency issues (esp when most are importers so that works in their favour) are red herrings in my book.

[Steve]

quote:Originally posted by KW

Blaming cold summers or hot winters, or currency issues (esp when most are importers so that works in their favour) are red herrings in my book.

I agree - SHAME on them!...[V]

[skinny]

I think HB had a good point with the currency and retail price deflation. As the NZD rises you can buy product from overseas cheaper for sure, which should get the customers in, but it also implies your existing product (to the extent their is an overlap) has also got to be sold at the new cheapest price -- if you don't discount your old stock to reflect new import prices your competitor surely will. So, on balance a currency rise could leave you worse off given the erosion of margins on your existing stock.

That said in part surely it is a mgmt problem. There are a couple of things I can think of off the top of my head to mitigate the problems of deflation, probly more could be done:

- import stuff that is not so generic, i.e. subject to less competition & margin erosion.

- invest in a very good inventory control systems and source overseas suppliers ready to deal on a 'just in time' type basis. If you have lean inventory and are first to get the cheaper imports you'll be laughing.

[winner69]

See the discounters on The Apprentice tonite got thrashed ... and fired

The two dolly birds sold chocolate bars for $5 and made heaps while the losers panicked when they hadn't sold any after 10 minutes and discounted their bars to $1

A lesson for all and you are right skinny - strategy and management has a lot to do with he current woes of some retailers

They will say that strategies are long term but you also have to wonder about that as well ... BGR and WHS adding footprint at a great rate ... a rate greater than sales are going up ... and declining profits

Any strategy with increasing sales but declining profits must be flawed ... and generally is destroying shareholder value

[Onthemoney]

Well said winner69.....

[Steve]

It is not just NZ Retailers who have fallen into the discounting trap...

"Southcorp is closing wineries to reduce costs after a failed discounting strategy ..."

http://www.nzherald.co.nz/index.cfm?c_id=3&ObjectID=10007136