Fashion, homeware a boost for retail sector

The success of the international fashion and homeware labels in Australia has been a boon for retail landlords, at a time when sales are flatlining at the local level.

Consumer sentiment showed a marginal improvement last month, but shoppers are voting with their feet and preferring the new brands for a point of difference.

The Westpac-Melbourne Institute of Consumer Sentiment index rose by 3.5 per cent in August. That took the index to 105.7, its highest reading since March. A figure above 100 means the number of optimists outweighs the number of pessimists. Sentiment is now 9.4 per cent higher than it was a year ago.

Commonwealth Bank economist Gareth Aird attributed the improvement to the cut in the official interest rate and confirmation of a federal election - thereby eliminating uncertainty - as well as rising house prices in some states and a more buoyant sharemarket.

"A lower cash rate means lower mortgage rates," Mr Aird said. "And this means lower monthly mortgage repayments, the ability to repay debt quicker or cheaper new debt."

But sales are still focused on the less-traditional areas of mobile phones, eating out, cinema patronage, beauty services and overseas fashion brands.

According to Goldman Sachs retail analyst George Batsakis, for the year to June 30, Zara Australia reported sales of $107 million across its six stores, with an earnings before interest and tax (EBIT) of $27 million.

"This is only Zara Australia's second year of operation, but its sales now are almost equal to Premier Investments' Just Group apparel business," Mr Batsakis said. "In comparison, Just Group's Portmans division, whose profit is estimated by Goldman Sachs to be $110 million for the 2013 year, has operated in Australia for many years. In addition, Zara Australia's profitability ratios are very high, with a 2013 financial year EBIT margin of 25 per cent compared to Just Group's 10 per cent."

Mr Batsakis said Zara Australia's return on assets for the 2013 year was 46 per cent compared to Just Group's 27 per cent.

For the major retail landlords, sales data by retail category also showed customers are turning away from department stores in favour of general retailers.