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Analyst: Consumer cost pressures not impacting retail spending

There are few signs that consumer cost pressures have impacted retail spending yet, according to UBS analyst Ben Gilbert, who believes trading updates from Australia’s major consumer sector stocks have been “generally positive”.

In a new report, Gilbert has provided a lukewarm assessment of FY17 reporting season for the consumer sector, outlining upside for the likes of Woolworths, Super Retail Group, Harvey Norman and JB Hi-Fi.

Assessing Domino’s, Flight Centre, Harvey Norman, JB Hi-Fi, Super Retail Group, Wesfarmers, Woolworths, Myer, Coca-Cola Amatil, Costa Group, Inghams Group and Treasury Wine Estates, Gilbert said FY18 like-for-like sales (year-to-date) have been up 3 – 6 per cent year-on-year, excluding Myer.

He said that the impending entry of Amazon has driven “increased urgency” from retailers to increase digital capital expenditure, shorten lease durations and place an increasing emphasis on click and collect as well as store bused fulfilment.

Super Retail Group has outlined its intention to spend $50 million on digital and omnichannel initiatives in the next year, while alongside JB Hi-Fi, also saying it will move to shorten its lease commitments.

As sister site, Inside Retail, has previously reported, fashion players like Specialty Fashion Group, Billabong International and RCG Corp. have all also adopted similar strategies to bolster their omnichannel credentials and minimise overheads amid heavy discounting.

Gilbert outlined Myer as a notable exception from his outlook assessment, saying that alongside Metcash the retailer was facing more structural challenges that signalled headwinds for FY18.

“We continue to favour companies with international expansion, low exposure to a macro slowdown, and upside from a turnaround,” Gilbert said.

“We are negative on those retailers with high historical correlations to a slowing consumer, and those facing structural headwinds.”

There are risks on the horizon, however, including rising electricity prices and a predicted downturn in the housing market over the next twelve months.

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