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CE Retailers Stocks Hit, Dollar Falls More Pain Tipped

JB Hi Fi, Harvey Norman, and Wesfarmers the owner of Bunnings and Officeworks all fell yesterday as billions was wiped off the value of Australian shares, the dollar is trading at $0.69 and falling.

Macquarie’s equities team placed downgrades on JB Hi-Fi, Harvey Norman, and Wesfarmers, predicting “significant pressure on discretionary spending” going forward.

Kogan is wallowing at $3.04 with their shares tipped to fall to sub $3.00.

The Chief executive of the Australian Retailer’s Association, Paul Zahra, said the entire retail sector had emerged from COVID-19 related lockdowns only to fight even more battles.

“They’ve navigated the worst of the pandemic, but the hits just keep on coming from ongoing supply chain issues, staff shortages and the rising cost of fuel and materials. Many of the cost pressures this year are unprecedented,” he said.

For CE and appliance retailers the big question is what consumers will cut from their monthly expenditure.

“I doubt that hardware such as smartphones, notebooks, and essential appliances will be hit as hard as discretionary spending such as multiple streaming expenditure or even the like of Uber Eats.” claims a former JB HI Fi executive.

“People have got used to adding costs to their weekly expenditure especially subscriptions services such as gyms, software apps that they use on their mobile as well as eating out a lot. These are the first round of expenditure that will be hit they claim.
blaming retailers who they claim have “Jacked up ” prices to make up for lost revenues.

Last year, businesses started raising prices at a pace not seen in decades. Among major economies, one country was hit the worst – the United States where inflation is heading to double digit.

Last month, inflation in the US hit 8.6%, one of the highest rates in the world.

Many of the forces driving inflation last year in Australia – such as supply disruptions from Covid and higher food prices after severe storms and drought hurt harvests – were not unique to Australia where food prices are rising due to a lack of fresh food supply.

Some observers are now claiming that Australian retailers will soon face the toughest conditions in more than a decade.

Barrenjoey consumer analyst Tom Kierath told the SMH that it was hard to think of when conditions had been tougher for retailers over the past 15 years, with consumers now battling a “cocktail” of higher interest rates, food, and fuel costs.

“It’s easy to see why consumer confidence is back to GFC levels. Increasingly, we think [Financial year] 23 will be as difficult as FY19, potentially worse in some categories,” he wrote in a note to clients.

Macquarie’s equities team claim “A rise in inflation increases the cost of staples for consumers, leaving less leftover money to purchase discretionary items. We would expect rising inflation to lower relative demand for discretionary items relative to staple items,” Macquarie’s equities team said.

JB Hi-Fi shares fell 5.7 per cent for the session to $39.31, while Harvey Norman was 5.4 per cent lower to $3.86. Supermarket giant Wesfarmers also weighed down a struggling market, losing 3.8 per cent for the session.

During the past six months retail sales have been at record levels should help insulate the sector as interest rates rise.

“Household savings [also] remain up on pre-pandemic levels, which will assist in cushioning the blow from the cost-of-living pressures many are experiencing,” he said.

Macquarie analysts claim that while consumers may have some cash to spend, a combination of rising costs and big spending on electronics during COVID lockdowns could dampen discretionary spending moving forward.

“The likely overconsumption of goods over the past two years as a key risk to near-term performance,” the group said in a note.

The Reserve Bank governor, Philip Lowe, has warned Australians to be prepared for higher interest rates, saying inflation will likely reach 7% by the end of the year and it must be brought under control.

So how would you like to be a retailer in Argentina where monthly inflation slowed slightly more than expected in May, with price gains reaching almost 61% in annual terms as investors worry about the government’s ability to pay its local debt.

Consumer prices rose 5.1% last month from April, just below a 5.2% median estimate of economists surveyed by Bloomberg.

From a year ago, inflation climbed to 60.7%, a new 30-year high, according to government data published Tuesday.


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