As margin pressures continue.
Citi analysts have painted a relatively pessimistic picture for household goods retailers such as Harvey Norman and JB Hi-Fi for the Christmas sales period.
In a note to clients, Citi analyst, Craig Woolford commented, “Although food retailers are well-placed with abundant supply in fresh categories, we remain negative on housing-related categories given the drop in both house prices and housing churn.”
Housing-exposed retailers are expected to see EBIT margin headwinds in 1H19, the note said.
“The slowing demand backdrop is resulting either in slowing sales momentum or increased promotional intensity to maintain sales. Sometimes a strong spending period at Christmas doesn’t translate to a strong profit period because retailers discount too much. We expect to see some combination of operating deleverage and gross margin pressure,” he said.
“We expect a degree of mean-reversion for department stores, with LFL sales declines moderating for Myer and Target, progress on the turnaround continuing at Big W, as Kmart continues to slow following several years of market share gains.”
When it comes to Christmas gifts, Woolford said big ticket electronics seem limited, although smartwatches are tipped to be big in 2018.
“The most popular children’s gifts are likely to be Fingerlings, LOL Dolls, slime and Nintendo Switch. For the adults, fitness watches, speakers and perfumes seem to be on the wish list. There are not that many new ideas, but the gifts focus on quality design, colour or personalisation.”
Top 10 gifts for Christmas
- Fingerlings and LOL dolls
- Elasti Plasti
- Fitbit Charge 3
- Nintendo Switch
- Lego Super Hero
- Gucci Bloom
- Ugg Scuffette
- Frank Green Coffee Cup
- UE Boom, Sony, JBL portable speakers