Food, drink safe in slowdown

HARDWARE, electrical appliance and music retailers will be hardest hit by the economic slowdown while those selling soft drink, beer and food staples would provide safe harbour for investors, according to a retail analyst. Consumer sentiment slumped to 16-year lows in the June half and forecaster Access Economics expects retail turnover will bottom between January and March next year.

By InvestSMART · 4 Sep 2008

By InvestSMART ·
4 Sep 2008

While the S&P/ASX 200 Index has fallen 6.3% in the past six months, consumer discretionary stocks in the index have fallen 21.5%.

In a note to clients, Citi analyst Craig Woolford said that of the listed retailers, electrical and entertainment company Harvey Norman, clothing company Pacific Brands and surfwear seller Billabong were most susceptible to a retail slowdown.

Beverage maker Coca-Cola Amatil and grocery wholesaler Metcash were more cushioned from the impact of the slowdown because sales of their products had historically held up during hard times, he said.

Baker Goodman Fielder and brewer Foster's were also less vulnerable than other consumer goods companies, he said.

Wesfarmers was vulnerable to the downturn, not because of the big task of turning around the Coles supermarkets, but because hardware sales through its Bunnings chain could be hit, Mr Woolford said.

Bunnings contributes 15% of Wesfarmers' retail sales.

Sales growth slowed between March and June and Bunnings boss John Gillam expects it to be "constrained" this financial year due to "continued weakness in most new housing markets".

Although Bunnings could fare better than some smaller companies, a slowdown in sales at hardware stores could trigger further consolidation in the industry, which is dominated by Bunnings, Mitre 10, and Danks Holdings.

It could also see the number of electrical stores that belong to the Betta and Retravision chains fall as they either close or defect to rival chains.

Even industry leader Harvey Norman has been hit by slowing sales growth at stores owned by its franchisees.

In the second half of last financial year, sales growth was two-thirds less than it was at the same time the year before.

So far this calendar year, it is ranked as the second-worst performer of the 24 companies in the S&P/ASX 200 consumer discretionary index.

Its shares are down 47% so far this year, and it has only been surpassed by the ailing ABC Learning Centres, which is yet to report its full-year results.

Harvey Norman yesterday closed down 9 at $3.61.