Ignoring Retail Stocks? You May Miss the Boat!

  • Jun 29, 2020 NZST
  • Team Kalkine
Ignoring Retail Stocks? You May Miss the Boat!

Summary

  • Retail space witnessed massive blow amidst pandemic induced shutdowns and social distancing norms.
  • Retail therapy is expected to drive consumer footfall in retail stores.
  • Anticipated amendments in the Property Law Act may require commercial property owners to offer a fair reduction in rent to retailers.
  • The pandemic appears to be offering a chance for retailers to build the foundation of a more nimble, digital business for the future. 

While the retail sector has been no exception in bearing the brunt of stringent lockdown restrictions levied in the wake of COVID-19 pandemic, the industry stands out in picking up steam with Kiwi Land easing intervention measures. With mild Alert Level 1 Alert in place, the widespread reopening of businesses and uptick in consumer confidence is further likely to give a leg up to the retail sector in the coming months.

The latest data revealed by Stats NZ exhibited a seasonally adjusted surge of 79 per cent in retail card spending during May 2020, with consumers accelerating spending on furniture, appliances, and groceries.

Surpassing market expectations, retail card spending rebounded by NZD 2.3 billion in May from remarkably low levels in April. Despite a revival, retail card spending was 6 per cent or NZD 332 million lower relative to May 2019. 

Though the retail sector has not yet recovered to pre-pandemic levels, few promising signs deserve closer attention to gauge the growth trajectory of the retail industry in the near term. Let us discuss three emerging signs underlining the retail trends

  1. Retail Therapy May Gather Force

As retail stores unlock their doors after months of the shutdown, New Zealanders are more likely to engage in retail therapy as a break from COVID-19 lockdown monotony.

Retail therapy is one of the most common ways used by people to get over terrible experiences or memories by spending on something they don’t really need. Numerous psychological studies have validated the occurrence of an immediate feel-good factor after retail therapy that fights lingering stress or sadness.

While experts describe this therapy as a psychological disorder or compulsive shopping disorder, it actually offers a safe and effective escape from anxiety and stress.

At the time when coronavirus pandemic has wreaked havoc on the retail industry, retail therapy is expected to drive consumer footfall in retail stores, potentially boosting their prospects of recovery. Besides, innovative online platforms and offerings is expected to provide a further nudge to retail spending.

Retail players like Kathmandu Holdings Limited (NZX:KMD), Michael Hill International Ltd (ASX:MHJ) and Briscoe Group Limited (NZX:BGP) are more likely to be on shoppers’ list as soon as they step out for retail therapy.

  1. Retail Properties Can Turn in Favor of Tenants

In comparison to other income-producing real assets, retail properties have been more vulnerable to COVID-19 pandemic amid widespread store closures in lockdown, particularly those providing non-essential services.

While reopening of stores is gathering momentum, retail real estate is expected to bounce back gradually as properties are usually slow to react to economic movements. This could work in favor of retailers, potentially offering them more bargaining power to negotiate rents with retail property owners.

Besides, the New Zealand government has lately agreed to make amendments in Property Law Act requiring commercial property owners to offer a fair reduction in rent to businesses that have suffered a revenue hit due to COVID-19, that is further likely to benefit retail tenants in the near future.

The amendment in property act is expected to support several retailers like City Chic, that lately shut its fourteen stores in New Zealand and Australia to manage its capital expenses amid coronavirus crisis, post failing to bargain lower rents with landlords.

  1. An Opportunity to Outperform Competitors

COVID-19 left retailers bleeding and keeping people indoors and shuttered. However, the pandemic seems to be emerging as an opportunity for high-grade retailers to outperform less-active competitors.

The pandemic appears to be offering a chance for retailers to build the foundation of a more nimble, digital business for the future.

While one cannot deny that retailers are making every possible effort to sail through the coronavirus storm, COVID-19 era is all about survival of the fittest. It is not hard to picture a situation where retailers that are quick to adapt to ‘new-normal’ would survive while rest may have to walk out of business over the coming months.

Towards this end, retailers may need to accelerate their plans to boost online sales, adopt innovative tech models, diversify away from brick and mortar and bring innovative offerings to its product pipeline keeping in mind the paradigm shift in consumers’ preferences.

 Large-scale migration from physical stores to online channels could be a game-changer for retailers amid massive shift in customers’ tastes towards tech-enabled commerce.

Early in June, New Zealand’s retail association, Retail NZ also highlighted that businesses that have failed to develop an online presence would battle in coming years. Online presence acted in the interest of NZ retailer Kathmandu Holdings Limited (NZX:KMD), that witnessed a considerable surge in online sales in April this year.

Given these indications, it seems unreasonable for market participants to neglect retail space out of panic, fear, and haste despite their weaker performance over the last few months.

Present juncture requires retailers to create contingency plans for disruption, cut across traditional thinking, deal with lower consumer confidence and balance financial needs. Sooner alignment with the new normal and effective e-commerce could help propel the retail industry in the post-COVID era.

 


Disclaimer
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.

 

   
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