Michael Luke: Milford Asset Management expert on the economic struggles impacting the retail sector

Recent trading updates indicate the nation's leading retailers are feeling the pinch ahead of the busy season.

The Warehouse and Kathmandu are among the big names that have been seeing significant losses over the past few months.

Milford Asset Management's Michael Luke says there's hope things will pick up in the next few weeks, given the demand brought about by Christmas and Boxing Day.

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Episode Transcript

Speaker 1 (00:09):
You're listening to a podcast from News Talks be follow
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Speaker 2 (00:16):
Let's get to markets now. Michael Luke from Milford is
with us.

Speaker 3 (00:20):
Hello, good evening.

Speaker 2 (00:21):
So retail companies tell us about them that, I mean,
we all know they've been struggling with the economy the
way it is. What have you seen out there?

Speaker 3 (00:28):
Yeah, Look, I think it's fair to say a lot
of our retailers, including the listed ones like the Warehouse
and camp min dev have been hit pretty hard over
the last few years with the weak economy. Retailers that
they've got very large kind of fixed cost spaces from
operating these stores, for example, rent, utilities, staffing, that's all fixed.
So lower sales through the door can have a very large,

(00:50):
kind of outsized impact on innings. And that's evidence with
the Warehouse Group, who did over three billion dollars of
sales last year but actually lost five million dollars of profit. Now,
recent trading updates we've seen suggest that the retail environment
still remains challenging. A couple of weeks ago, the Warehouse
reported their first quarter of revenue was up about one percent.

(01:11):
Within that volume of units sold was actually up nearly
three percent, but prices were down with promotional activity. We
also had Hellenstein's. They had their AGM today which highlighted
an impressive fourteen percent sales growth for the past eighteen weeks,
but that was led by Australia and they called out
that trading in New Zealand still remains very challenging, although
it was ahead of last year. Now, December is a

(01:34):
very large month for retailers given Christmas and Boxing Day sales,
so I'm sure retailers will be certainly hoping for an
improvement compared to last year.

Speaker 2 (01:42):
Yeah, they absolutely will be. How will company you know,
our key has come on the scene, the big opening,
everyone's talking about it. How do you think that companies
like the Warehouse are going to fear Yeah, we.

Speaker 3 (01:52):
Think it will definitely add more competitive pressure to those
retailers selling similar products, which does include companies like the
Warehouse or Camut in the area. I Care has a
pretty broad range of products, so they could win some
sales off for a number of different companies, including areas
like kits where they could win some shares off a
like of Bunnings et cetera. That Ikea store had been

(02:14):
long awaited by consumers, and it looks like the opening
has gone pretty well, like we saw off the opening
of Costco a few years ago. Now some companies have
actually benefited though, like mainfre It who helps off the logistics,
and the Ikea store will bring a lot more people
to stores in the area like Sylvia Park, so some
of those stores will benefit as well.

Speaker 2 (02:33):
Let's look ahead twenty twenty six, better year for retailers,
do we think better year for the economy?

Speaker 3 (02:39):
More generally, we think so well, it's been a pretty
tough few years. We do think the New Zealand economy
is likely bottomed and we are expecting a gradual recovery
next year. Now. We expect that's going to be driven
by the large reduction and interest rates which is flowing
through a mortgage holders businesses and boosted confidence, and we
have seen that in some of the recent data. Now

(03:00):
in November consumer confidence surveys showed they actually lifted to
the highest level since June. So confidence is starting to
improve and we're actually starting to see that a little
bit in some of the spending data, such as a
Z car data for November which showed that spinning was
up four percent compared to last year. Now, given those
fixed costs with those retail stores, a small improvement in

(03:22):
sales will definitely help the bottom line next year. So yeah,
certainly hoping for a bitter year next year, and we
do think that regardless of the broad economic backdrop, there
will be retailers with a compelling consumer proposition like the
ias that will continue to do well.

Speaker 2 (03:38):
Michael, appreciate that update. Michael Luke Milford with us tonight.

Speaker 1 (03:41):
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