Retailers see clouds on the horizon as consumers exercise caution

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The slowing economy is expected to prove a challenge for listed retailers as consumers tighten their belts.
Photo: RNZ / Nate McKinnon

Listed retailers have reported profitable results over the latest reporting season, but the outlook is for tough times ahead as consumers struggle with rising cost-of-living expenses.

Men and women’s clothing retailer Hallenstein Glasson’s full-year sales and profit rebounded strongly after last year’s Covid-hit result, but current year sales were down 6 percent in the first eight weeks.

Clothing and sporting goods retailer KMD Brands’ full-year profit was down slightly despite record sales and an improved profit margin, with a cautious outlook.

The slowing economy also hit the first-half profit of homeware and sports goods retailer Briscoe Group, while The Warehouse’s full-year profit fell sharply as inflation, shrinking margins, and cautious consumers hammered earnings.

Forsyth Barr analyst Margaret Bei said weak demand had hit retailers to varying degrees, with durables and big-ticket items hit harder than consumable products.

She said retailers were also coping with increasing labour costs as well as increases in rental leases.

“I think my outlook is in some ways quite similar to what the companies have mentioned, which is that consumer demand weakness may be tricky for at least the next 12 months and that’s really a reflection of where we are with interest rates and the economic cycle.”

The Warehouse reported that Torpedo7’s sporting goods sales were hit by a sharp downturn in the demand for bicycles, along with bad weather and a general downturn in consumer sentiment.
Photo: RNZ

Bei said costs were also expected to increase, but perhaps not at the same pace.

“And one would hope that as we get a little bit more confidence coming through, and as we roll through this part of the interest rate cycle, eventually we’ll see that consumer demand come back.

“And what’s interesting is that a lot of these retailers have put a considerable amount of effort into reducing their cost bases. So should they be able to continue doing that or to manage that sort of level, it will be interesting to see what happens when we get a demand recovery.”

But Bei said there would be some differences between how well retailers were able to manage.

“It’s very interesting that across the New Zealand-listed retailers, at least, there’s varying degrees of control that management have over their balance sheet and also varying degrees of execution.”

She said some were better placed than others to manage.

“I would say it’s been quite difficult for The Warehouse in particular, just because of the brands they own – Noel Leeming and Torpedo7 – [which are] particularly exposed to changes in consumer demand.”

The Warehouse reported that Torpedo7’s sporting goods sales were hit by a sharp downturn in the demand for bicycles, along with bad weather and a general downturn in consumer sentiment.