Key information about Australia's retail sales growth:
• As per the data from the Australian Retail Association, Australian retail sales were up by 4.2% year-on-year in May 2023.
• Australia retail sales growth year-over-Y has given an average growth rate of 5.6%.
• From the data, it was seen that growth reached an all-time high of 24.6% in April 2021 and a record low of -8.8% in April 2020.
• Car sales in Australia were recorded at 105,694 units in May 2023, representing a growth of 12%.
The key sectors in the Australian retail market are food and grocery, clothing and footwear, home, electrical, health, and beauty, among others. Food and grocery had the highest value share in 2022 and also maintained the highest growth rate. The Australian retail market was estimated to be worth $358.9 billion in 2022 and is expected to grow at a CAGR of over 3% during the forecasted period of 2022–2027. Some of the key distribution channels in the Australian retail market are hypermarkets, supermarkets, hard discounters, online food and drink specialists, clothing, footwear, and accessories specialists, value, discount, and variety stores, drug stores, health and beauty stores, and gas stations. Australia’s leading distribution channels are hypermarkets, supermarkets, and hard discounters.
Wage cost growth could be a big challenge in the Australian retail industry in 2024.
The wage rate increased for most retail workers by 4.6% as of 1 July 2022. Additionally, a higher employer superannuation contribution added another 0.5% to wage costs. Looking forward, the prevailing level of inflation could further lead to retail wage rate growth of 5%–6% in the near future.
During this time, when economists project slower economic growth due to a fall in retail consumption, it becomes highly difficult to figure out a good fundamental company from a buying perspective. However, our core research team, which is highly skilled and experienced, managed to identify some key names in the retail space that might have the potential to become the next multi-bagger. These are as follows:
Super Retail Group Ltd. (ASX: SUL)
Super Retail Group Ltd. (ASX: SUL) has a market cap of $3.28 billion and a share price of $14.54 as 8 December 2023. The consolidated entity has been putting constant emphasis on adopting the ‘Omni retail strategy’ and capital allocation to proliferate the store count. The group has opened six stores in FY2024 to date and has planned to increase counts by another 24 store openings in the future. The group is targeting Capex in FY2024 at $150 million.
The group expects its cost base to increase on account of the inflationary impact. The total active club membership has been growing continuously and is expected to maintain the momentum ahead.
Wesfarmers Ltd (ASX: WES)
Wesfarmers Ltd. (ASX: WES) has a market cap of $60.84 billion and a share price of $53.64 as 8 December 2023. Wesfarmers is gearing up for the 2024 launch of its lithium business, emphasizing on long-term value creation and sustainability. The company has made strides in data and digital capabilities, using AI and predictive analytics to boost retail productivity. The OnePass membership program expanded through partnerships with Bunnings Warehouse, Disney+, and Flybuys. The company's strong financial performance has been underscored by a robust 12.9% growth in divisional earnings for the year, driven by the group's adaptability to changing trading and market conditions.
JB Hi-Fi Ltd. (ASX: JBH)
JB Hi-Fi Ltd. (ASX: JBH) has a market cap of $5.35 billion and a share price of $48.90 as 8 December 2023. JB Hi-Fi is committed to enhancing the in-store experience by evolving layouts and offerings, coupled with the opening of new stores in Australia and New Zealand, with plans for further expansion.
Innovative strategies such as personalized campaigns, online chat support, and distinct features like "Price Beat" are elevating customer interactions. In New Zealand, the company is in the process of store relays, relocations, and strategizing new store expansions.
**All Data has been sourced from Company announcements and Refinitiv, Thomson Reuters
Frequently Asked Questions (F.A.Q)
What are best ASX companies in the consumer cyclical sector in 2023?
Some of the names that are doing good in the ASX retail space such as: Wesfarmers Ltd (ASX: WES); JB Hi-Fi Ltd. (ASX: JBH); Super Retail Group Ltd. (ASX: SUL)
Are retail stocks a good portfolio investment?
As population growth well supported the Australian economy due to rise in the consumption so far, but as per the estimation the Australian economy could face slump in the consumption in the short term, hence will impact in the revenue generation of the ASX companies. There might be shortcomings in the near term perspective but on a long run can be good prospects.
What factors should consider before buying ASX retail stocks?
Analysts always look at the revenue and net earnings growth of ASX retail companies, which influence the share price. Apart from that rate of capex growth, build revenue-generating assets that will potentially support free cash flow generations.
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