Fashion, homeware a boost for retail sector
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.
Frequently Asked Questions about this Article…
The article says the success of international fashion and homeware labels in Australia has been a boon for retail landlords. While local sales are broadly flat, shoppers are choosing new international brands for a point of difference, which is supporting higher demand for retail space.
The Westpac–Melbourne Institute consumer sentiment index rose 3.5% in August to 105.7, its highest reading since March. A reading above 100 means optimists outnumber pessimists, and the index was 9.4% higher than a year earlier.
Gareth Aird attributed the improvement to a cut in the official interest rate, confirmation of a federal election removing political uncertainty, rising house prices in some states, and a more buoyant sharemarket. He also noted a lower cash rate typically leads to lower mortgage rates and smaller monthly repayments.
Sales are concentrating in less-traditional areas such as mobile phones, eating out, cinema visits, beauty services and overseas fashion brands, rather than in traditional department stores.
For the year to June 30, Zara Australia reported about $107 million in sales across six stores and an EBIT of $27 million. In the 2013 financial year its reported EBIT margin was around 25%, indicating strong early profitability.
Goldman Sachs estimated Portmans’ profit at about $110 million for the 2013 year. By contrast, Zara Australia’s 2013 EBIT margin was about 25% versus Just Group’s roughly 10%, and Zara’s reported return on assets was about 46% compared with Just Group’s 27%.
The article highlights a customer shift from department stores toward general retailers and specialty international brands. For retail sector trends, that means landlords and retailers focused on attracting popular specialty and overseas brands may capture more foot traffic and sales.
A lower cash rate tends to lower mortgage rates, reducing monthly mortgage repayments. That can free up household cash to repay debt faster or take on cheaper new debt, which may support consumer spending and benefit retail sales in categories where shoppers are active.
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