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 (00:00):
Let's get to markets now. Michael Luke from Milford is
with us.

Speaker 2 (00:03):
Hello, good evening.

Speaker 1 (00:05):
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 2 (00:12):
Yeah, Look, I think it's fair to say a lot
of our retailers, including the listed ones like the Warehouse
and camp Mind, 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,

(00:33):
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 sales revenue was up about
one percent. Within that volume of units sold was actually

(00:56):
up nearly three percent, but prices were down with 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 and still remains
very challenging, although it was ahead of last year. Now,

(01:17):
December is a 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 1 (01:25):
Yeah, they absolutely will be. How will company, you know,
our kres 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 2 (01:35):
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 kit set kitchens where they could win some shares
off a like of Bunnings, et cetera. That I Care

(01:57):
store had been long awaited by consumers, and it looks
like the openings gone pretty well. Like we saw off
the opening of Costco a few years ago. Now some
companies have actually benefited though, like Mainfreight who helps off
the logistics, and the ICHA 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 1 (02:17):
Let's look ahead, what twenty twenty six better year for retailers?
Do we think? Better year for the economy?

Speaker 2 (02:23):
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 to mortgage holders, businesses and boosted confidence and we
have seen that in some of the recent data. Now

(02:43):
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 am
Z car data for November which showed that spending was
up four percent compared to life. Now, given those fixed
costs with those retail stores, a small improvement in sales

(03:05):
will definitely help the bottom line next year. So yeah,
certainly hoping for a better 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 1 (03:21):
Michael, appreciate that update. Michael Luke Milford with US tonight.

Speaker 2 (03:25):
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Speaker 1 (03:27):
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