Is retail really struggling? Small cap retail stocks up 6 per cent in six months
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Is retail in as bad shape as economists claim it is? Not if you ask ASX retail small caps.
In the last six months, these companies have gained an average 6 per cent — a period that includes the effects of the Morrison governments tax cuts and record low interests. These were intended to stimulate the economy but in recent weeks some economists, such as ANZ’s Felicity Emmett, suggested they had not worked due to weak consumer confidence figures.
While in the last 12 months retailers have lost 4 per cent, this rises to a gain of 1 per cent if you include the IPO of Mediland Pharm (ASX:MPH). The daigou-focused retailer has gained 50 per cent since it listed in February.
The best performer has been plus-size clothing retailer City Chic Collective (ASX:CCX) which stood at 11 cents in December 2017 but is now at $2.81. In April you might’ve been forgiven for thinking the run was over when major backer Nigel Evans (the founder of Cotton On) sold out. But it has gained another 74 per cent since then.
Also gaining was grooming retailer Shaver Shop (ASX:SSG) and baby store Baby Bunting (ASX:BBG).
Admittadly, not all stocks gained. The Reject Shop (ASX:TRS) has performed poorly since 2016 but this morning declared things were turning around. But it failed to pick up and is only half its size from 12 months ago.
Michael Hill (ASX:MHJ) had been another struggling stock but investors have responded more enthusiastically to its claims the environment is improving.
One explanation could be that things are slowly improving. NAB’s Cashless Retail Sales Index, which measures all cashless retail spending accounting for debit and credit cards as well as BPAY and PayPal was released yesterday. It rose to 6.3 per cent year on year growth and 0.3 per cent month on month growth (seasonally adjusted).
But while Chief Economist Alan Oster acknowledged retail was improving, it was at a low base and hence more stimulus was needed.
“While tax rebates and three rate cuts this year are likely to have provided — and will provide — some support to household spending, we consider that more stimulus will be required to provide a material turnaround in consumption,” he said. “Further, it will take some time to flow through.”
He argued this would come, predicting the RBA would cut rates again in December to 0.5 per cent. But he forecast that unemployment would rise to 5.5 per cent over the next year and wage growth would remain weak.
Another explanation could be that the biggest gainers are niches which target items consumers are still spending on, such as grooming and baby products.
Among NAB’s figures, household goods accounted for a significant proportion of the strength in the figures rising by 6 per cent. Retaurants, cafes and takeaway did better, rising by 10 per cent.
The leader of the ASX small cap retailers, Mediland, is arguably unaffected by the Australian economy and consumer confidence because of its focus on Chinese tourists.