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Michael Luke: Milford Asset Management expert on the economic struggles impacting the retail sector · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks be follow
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  Speaker 2: Let's get to markets now. Michael Luke from Milford is
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  Speaker 2: with us.
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  Speaker 3: Hello, good evening.
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  Speaker 2: So retail companies tell us about them that, I mean,
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  Speaker 2: we all know they've been struggling with the economy the
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  Speaker 2: way it is. What have you seen out there?
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  Speaker 3: Yeah, Look, I think it's fair to say a lot
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  Speaker 3: of our retailers, including the listed ones like the Warehouse
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  Speaker 3: and camp min dev have been hit pretty hard over
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  Speaker 3: the last few years with the weak economy. Retailers that
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  Speaker 3: they've got very large kind of fixed cost spaces from
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  Speaker 3: operating these stores, for example, rent, utilities, staffing, that's all fixed.
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  Speaker 3: So lower sales through the door can have a very large,
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  Speaker 3: kind of outsized impact on innings. And that's evidence with
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  Speaker 3: the Warehouse Group, who did over three billion dollars of
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  Speaker 3: sales last year but actually lost five million dollars of profit. Now,
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  Speaker 3: recent trading updates we've seen suggest that the retail environment
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  Speaker 3: still remains challenging. A couple of weeks ago, the Warehouse
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  Speaker 3: reported their first quarter of revenue was up about one percent.
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  Speaker 3: Within that volume of units sold was actually up nearly
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  Speaker 3: three percent, but prices were down with promotional activity. We
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  Speaker 3: also had Hellenstein's. They had their AGM today which highlighted
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  Speaker 3: an impressive fourteen percent sales growth for the past eighteen weeks,
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  Speaker 3: but that was led by Australia and they called out
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  Speaker 3: that trading in New Zealand still remains very challenging, although
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  Speaker 3: it was ahead of last year. Now, December is a
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  Speaker 3: very large month for retailers given Christmas and Boxing Day sales,
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  Speaker 3: so I'm sure retailers will be certainly hoping for an
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  Speaker 3: improvement compared to last year.
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  Speaker 2: Yeah, they absolutely will be. How will company you know,
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  Speaker 2: our key has come on the scene, the big opening,
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  Speaker 2: everyone's talking about it. How do you think that companies
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  Speaker 2: like the Warehouse are going to fear Yeah, we.
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  Speaker 3: Think it will definitely add more competitive pressure to those
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  Speaker 3: retailers selling similar products, which does include companies like the
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  Speaker 3: Warehouse or Camut in the area. I Care has a
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  Speaker 3: pretty broad range of products, so they could win some
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  Speaker 3: sales off for a number of different companies, including areas
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  Speaker 3: like kits where they could win some shares off a
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  Speaker 3: like of Bunnings et cetera. That Ikea store had been
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  Speaker 3: long awaited by consumers, and it looks like the opening
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  Speaker 3: has gone pretty well, like we saw off the opening
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  Speaker 3: of Costco a few years ago. Now some companies have
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  Speaker 3: actually benefited though, like mainfre It who helps off the logistics,
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  Speaker 3: and the Ikea store will bring a lot more people
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  Speaker 3: to stores in the area like Sylvia Park, so some
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  Speaker 3: of those stores will benefit as well.
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  Speaker 2: Let's look ahead twenty twenty six, better year for retailers,
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  Speaker 2: do we think better year for the economy?
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  Speaker 3: More generally, we think so well, it's been a pretty
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  Speaker 3: tough few years. We do think the New Zealand economy
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  Speaker 3: is likely bottomed and we are expecting a gradual recovery
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  Speaker 3: next year. Now. We expect that's going to be driven
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  Speaker 3: by the large reduction and interest rates which is flowing
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  Speaker 3: through a mortgage holders businesses and boosted confidence, and we
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  Speaker 3: have seen that in some of the recent data. Now
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  Speaker 3: in November consumer confidence surveys showed they actually lifted to
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  Speaker 3: the highest level since June. So confidence is starting to
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  Speaker 3: improve and we're actually starting to see that a little
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  Speaker 3: bit in some of the spending data, such as a
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  Speaker 3: Z car data for November which showed that spinning was
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  Speaker 3: up four percent compared to last year. Now, given those
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  Speaker 3: fixed costs with those retail stores, a small improvement in
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  Speaker 3: sales will definitely help the bottom line next year. So yeah,
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  Speaker 3: certainly hoping for a bitter year next year, and we
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  Speaker 3: do think that regardless of the broad economic backdrop, there
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  Speaker 3: will be retailers with a compelling consumer proposition like the
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  Speaker 3: ias that will continue to do well.
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  Speaker 2: Michael, appreciate that update. Michael Luke Milford with us tonight.
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