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Cost-of-living pressures and higher interest rates have pulled infant goods retailer Baby Bunting into the dark cloud over discretionary retailers, which have increasingly reported languishing sales amid a crunch in consumer spending.

On Tuesday, Baby Bunting slashed its full-year profit expectation by a third as it struggled to improve sales. The $189 million company said it expected its net profit after tax to be in the range of $13.5 million to $15 million, compared with its previous guidance of $21.5 million to $24 million.

Despite Baby Bunting’s “Storktake” promotional event, the retailer said its trading both in stores and online was “unprecedentedly low” and well below expectations. Total sales growth for the financial year was about 1 per cent and comparable store sales growth was negative 3 per cent.

The company said that if the slowdown in sales continued, it expected comparable store sales to be between negative 4 per cent and negative 5 per cent, particularly as June traditionally delivered a larger proportion of the company’s second-half profit.

While it has maintained a gross margin towards the lower end of its expectations, the retailer said the full-year figure would likely be moderately below the bottom end of that range.

Shares in Baby Bunting took a pummelling, dropping 19 per cent to $1.45 a share about 1.30pm AEST.

Consumer discretionary stocks have been particularly sensitive to the higher interest rates and cost-of-living pressures putting a dampener on household spending.

Bedding and furniture group Adairs last week announced its sales growth had slowed 7 per cent in the second half and edged up a modest 1.9 per cent for the financial year.

“The impact of rising interest rates and higher cost of living has created a more subdued trading environment since April with lower traffic observed both in stores and online,” the company said in its trading update.

Jewellery chain Michael Hill also last week reported a decline in sales in its Australian retail jewellery segment in the second half, saying the 3.5 per cent fall was a result of a challenging economic environment.

“Given the prevailing economic conditions and resulting softening of consumer sentiment, trade has been more challenging for the jewellery industry in the second half, particularly in Australia and New Zealand,” the company said.

The latest figures from the Australian Bureau of Statistics showed household spending growth continued to slow in April, dropping to 6 per cent from a peak of 29.1 per cent in August last year and an 11.9 per cent increase in February.

Spending growth was slower for categories such as clothing and footwear (3 per cent) and furnishings and household equipment (1.8 per cent), with Wesfarmers boss Rob Scott warning in May that “the honeymoon is very much over” as customers become more conscious of their spending.

Eric Morris has stepped down as Brand Collective CEO but will continue to work with the company in non-executive and advisory roles, and sit on its board.

David Thomas – who has previously run Country Road Group and David Jones – has been appointed as the new CEO of the business.

Morris was appointed CEO when Brand Collective merged with the PAS Group in March last year and has been with the company for 18 years. His most recent challenge was integrating the two entities and growing their portfolio.

Of his decision, Morris said: “It has truly been an amazing journey, from the formation of The PAS Group in 2005 following the acquisition of the Yarra Trail business by Private Equity, to my involvement in each subsequent acquisition of the PAS brands and to the delivery of the business as it stands today.”

Thomas said he is delighted to join Brand Collective and pledged to work with the team to enhance business performance and deliver on future growth opportunities.

Executive chairman of Brand Collective, Larry Kestelman, said the business is “positioned for a prosperous future” and thanked Morris for his contribution to building the brand.

Brand Collective is a multi-brand apparel, footwear and sports business which sells 27 leading Australian and international brands, including Reebok, Superdry, Everlast, Replay, Clarks, Julius Marlow, Hush Puppies, and Moox.

Big W, David Jones, Lorna Jane, Rip Curl, R.M. Williams and The Iconic have signed up as members of the newly launched National Clothing Product Stewardship Scheme (NCPSS).

Each organisation has committed $100,000 to fund a 12-month transition phase while a new Seamless scheme is established.

Seamless was created by a Consortium led by the Australian Fashion Council (AFC) with Charitable Recycling Australia, Queensland University of Technology, Sustainable Resource Use and WRAP Asia Pacific.

AFC CEO Leila Naja Hibri said Seamless is the industry’s response to its clothing waste problem which will change the way Australians make, consume and recycle their clothes.

“Today, some of our industry’s most pioneering and progressive brands and retailers are uniting to do what no single business, organisation or even government can do alone,” Hibri said.

“Seamless will guide the transition from the current unsustainable linear model of take, make and dispose, to a circular economy of reduce, reuse and recycle.

“We need to start transitioning to the wardrobe of the future, where clothes are acquired differently, loved for longer and recirculated with care. This systematic and seismic transformation will require courage, creativity and most importantly, collaboration.

“We need to act now. Our industry, and most importantly our planet, depends on it.”

The NCPSS and the Roadmap to Clothing Circularity was officially launched by the Minister for Environment and Water, Tanya Plibersek, and is intended to drive the industry towards clothing circularity by 2030.

This will be done by incentivising clothing design that is more durable, repairable, sustainable and recyclable; fostering new circular business models for Australian fashion based on reuse, repair, re-manufacturing and rental; and expanding clothing collection and sorting for effective re-use and ensuring non-wearable clothes are recycled into new high-value products and materials.

It also involves encouraging consumer behaviour change for clothing acquisition, use, care and disposal.

The NSW Environment Protection Authority is also contributing $100,000 to the transition phase as a supporting partner.

The scheme design report released today recommends that Seamless is funded by a 4 cent per garment levy, paid by clothing brands and retailers who become members of the scheme.

AFC noted that if 60% of the market by volume sign up to the scheme, a funding pool of $36 million will be raised per year to transform the industry. It added that the activities driven by Seamless, stakeholders and citizens are projected to divert 60% of end-of-life clothing from landfill by 2027.

The Australian Government provided funding for the scheme design.

The Minister for Environment and Water Tanya Plibersek has vowed to take action on circularity in the fashion industry if little is done over the next 12 months. 

At the launch of Australian Fashion Council’s new Seamless initiative, Plibersek pleaded with fashion retailers to join the scheme, which will be funded by a 4 cent per garment levy by scheme members, alongside $100,000 contributions by six major fashion retailers: The Iconic, David Jones, RM Williams, Lorna Jane, Rip Curl and Big W.

The minister said if not enough fashion retailers sign up, she will launch a government-designed system alongside a levy to pay for it.

“We have a choice here,” Plibersek said. “This can be an industry-led approach. You collect the money, you decide how the money is best used, you invest in the research you need, you invest in the collection systems you need, you take charge… or I'll do it.

“I've been really clear that this is too big an environmental problem to turn our backs on. I want to see industry leadership. I don't want to be making these decisions for you. But if I don't see enough movement in a year, then I will regulate.”

According to Plibersek, the average Australian produces about 10 kilograms of clothing waste each year.

“We're throwing out the equivalent of say, two winter coats, six pairs of pants, three dresses, five t-shirts, a pair of shoes and a bag of odd socks every year. Now times that by 25 million.

“It's actually a quarter of a million tonnes of clothing going into landfill every year - it's pretty hard to conceptualize how big an amount that is.

“And of course, there's the waste. There's the economic waste of using something a few times and sticking it in the landfill. But there's also the huge environmental impact of doing that.”

Alongside waste, Plibersek said some clothes that break down release microplastics into the soil, which end up in water streams.

“The average Australians is ingesting a credit card's worth of microplastics every week, through the food we consume as it gets into our food cycle, through the water we drink.

“And of course, the manufacturing of clothing is very emissions-intensive - global textile production releases more carbon dioxide than the international flight and maritime industries put together.

“And if you see the sort of consumer movement in Europe to say don't fly anywhere because of the carbon emissions, you have to think is this coming for our industry as well?

Plibersek said this is where the new Seamless scheme comes in.

“It is about saying we don't accept this exponential growth of waste going into our landfill - there's exponential use of raw materials that then just get wasted. We've got to do something different.

“[The new scheme] does that by charging a tiny levy on every item of clothing, four cents on an item of clothing. There is no way on God's earth that Australian consumers are going to object to four cents on an item of clothing to stop it from going into landfill.

“Australians want to recycle. We saw the way people responded when Redcycle went bust. Across the community, people were alarmed by that.

“They want to minimize the impact they're having on the natural environment. And if you can help them do that for four cents on an item of clothing, they're going to be patting you on the back.”

The Iconic has appointed Jere Calmes as its new chief executive officer. 

Calmes has rejoined parent company Global Fashion Group (GF) after a three-year tenure as chief of Lamoda, which GFG sold in late 2022. Calmes led Lamoda to grow net merchandise value (NMV) by over 140% to ~€1.3bn, with profitability and positive cashflow since 2021.

Under his leadership, active customers reached nearly four million, with order frequency increasing to over five times per year. During his tenure, Lamoda grew marketplace share of NMV by over 45% and increased NPS to over 80%. 

GFG CEO Christoph Barchewitz said The Iconic is poised for the next phase of growth with 2.2 million active customers.

"We’re extremely pleased to have Jere rejoin GFG as CEO of our ANZ business. His impressive track record in fashion e-commerce and adjacent sectors, leading sizable consumer-facing operations, make him an ideal fit for The Iconic.

"Jere is also familiar with the business and the significant opportunities ahead. I am really looking forward to working with him again and am confident he will continue building on The Iconic's success."

Calmes said his focus will be enhancing The Iconic's position in the region through its fashion and lifestyle assortment and customer experience, while transitioning it into a comprehensive platform business.

“I am honoured to be joining The Iconic and working with such a professional and dynamic team once again, both in Australia and across GFG.

"As one of the most loved e-commerce platforms in the region, offering the strongest assortment of local and international brands, 1 the team has done an amazing job to evolve the business and I can't wait to play a part in this fascinating future.”

Outgoing CEO Erica Bertchtold welcomed him to the role.

“While it is bittersweet to be leaving The Iconic, I am delighted to hand over the reins to Jere who has been a trusted colleague for over three years as part of the GFG executive team. I am confident Jere and the team will take The Iconic to new heights and I look forward to welcoming him soon.”

The Best & Less Group Board of Directors have appointed Ray Itaoui as a director of the company and Executive Chair.

Itaoui will assume the responsibilities of CEO for a transitional period until Erica Berchtold joins BLG as CEO, expected to be in September 2023.

The BLG directors associated with Bignor and Allegro - now former majority shareholders - have resigned from their positions, with Jason Murray resigning from his position as Executive Chair.

Itaoui is the former owner of Sanity alongside its founder Brett Blundy, with both owning capital market firm BB Retail Capital.

For over 20 years, Itaoui has operated and invested in Australian and global retail businesses including Sanity, Bras N Things, Honey Birdette, Mr Vitamins, MakeUp Cartel and Universal Store.

He also served as the Chairman of Sanity, Bras N Things, Honey Birdette, Mr Vitamins and as an independent non-executive director of ASX-listed Aventus Group.

As of its 2022 annual report, BLG operate 182 Best & Less stores across Australia. The Group also owns New Zealand value apparel brand Postie, which operates 61 stores across NZ. 

The company's revenue for FY22 was $622.2 million. 

Mecca Brands, the cosmetics empire run by Jo Horgan and Peter Wetenhall, recorded revenues of $688.9 million in the 12 months to the end of December 2021, accounts filed with the regulator this week show.

That revenue figure was more than 20 per cent higher than the previous year, and suggests they are significantly higher today, given Mecca’s aggressive overseas expansion and a new flagship store set to open in Melbourne this year.

The growth of Mecca, founded in Melbourne in 1997, has underpinned the wealth of Ms Horgan and Mr Wetenhall. The Financial Review Rich List put the pair’s fortune this year at $778 million, up 7 per cent. Ms Horgan and Mr Wetenhall were each paid $10 million in dividends in 2021.

As a private company, Mecca does not regularly disclose its earnings. But accounts filed with the Australian Securities and Investments Commission on Wednesday show the company recorded a $23.5 million profit in 2021, down marginally from a $25.7 million profit a year earlier.

That was because costs rose along with the higher revenues.

Mecca also had debts of $185.9 million, down from $197.4 million in 2020.

The accounts reflect the impact of the COVID-19 pandemic, and Mecca said it had closed some of its stores during the year.

“As a result of temporary closures within the retail network, management has been working closely with landlords to manage rental agreements and related rental costs,” Mr Wetenhall wrote in the filings.

“Further, the business experienced a significant shift to the online channel, which has contributed to the underlying financial performance”.

Mecca has more than 100 stores in Australia and New Zealand, a Chinese retail presence on TMall and a Sydney CBD flagship store that opened in 2020. It is developing a two-storey Melbourne CBD outlet, which is expected to be the largest beauty store in the Southern Hemisphere when opened.

Ms Horgan has previously distanced herself from suggestions that the retailer could one day list on the ASX.

“I think having a private business allows you to have one focus, and that is the customer,” she told The Australian Financial Review in April. “I think as soon as you become a publicly listed business, you have a responsibility to shareholders, of which there are usually many. And I think that takes up a lot of headspace and time.”

Customers faced with the rising cost of living and higher interest rates are spending less at bedding and furniture group Adairs, which warned its annual profits will be hurt after sales eased this quarter.

Adairs, which is due to release its annual results on August 21, is the latest retailer to flag on Friday that consumer spending is drying up, following Wesfarmers chief executive Rob Scott’s warning this week that “the honeymoon is very much over”.

Jeweller Michael Hill International suffered a 3.5 per cent drop in sales over the half-to-date, blaming a softening in consumer sentiment in Wednesday’s after-market confession.

In late May, youth apparel group Universal Store warned subdued trading will persist into fiscal 2024 as its customers battled rent increases and student debt, triggering a 25 per cent plunge in its share price.

“After a solid sales performance in the first half of fiscal 2023, the impact of rising interest rates and higher cost of living has created a more subdued trading environment since April with lower traffic observed both in stores and online,” Adairs’ trading update said.

The company declined to comment further as its shares hit a fresh three-year low and tumbled as much as 18 per cent in Friday’s session. They lost 16 per cent to $1.58.

Adairs has three brands – namesake bedding chain Adairs; Furniture on Focus, which it acquired in December 2021; and online-only homewares brand Mocka.

The group pared back its guidance for annual earnings before interest and tax to between $62 million and $65 million, compared to its earlier guidance of between $70 million and $80 million.

Sales forecasts for the financial year have fallen to between $616 million and $622 million, from its previous range of between $625 million and $665 million. Even its revised range will put the group on track to beat the record $564.5 million achieved in 2022.

Adairs also pulled back its capital expenditure guidance to between $12 million and $13 million, from up to $15 million previously flagged. Group gross margin is still expected to be ahead of the second half of financial year 2022, and group inventory will finish below December 31 levels.

Morgans head of research Alexander Mees said Adairs just started its mid-year sale and “we suspect the early indications are not positive”.

Sales fell 3.4 per cent from the previous year over weeks 27 to 48. Year-to-date sales growth is 5.2 per cent measured from weeks 1 to 48.

Focus on Furniture was down 10.9 per cent on the previous year’s sales for weeks 27 to 48. Its year-to-date sales are still in growth territory: up 5.4 per cent on the previous year.

Sales for online furniture shop Mocka slumped 23.8 per cent since April compared to the previous year, but the division hadn’t been performing as strongly – its year-to-date sales growth is down 25.5 per cent on the previous year. The company had said earlier that the online-only homewares business was normalising as shoppers return to its bricks and mortar stores.

Australian retailers have seen a drop in online spending by $262 million in April 2023 to $3.3 billion, data from the Australian Bureau of Statistics revealed.

In seasonally adjusted terms, total online retailing sales were down by $49 million to $3.7 billion in April.

ABS notes that its seasonally adjusted estimates are produced by removing seasonal patterns from the original estimates.

Seasonally adjusted online sales fell by 1.3 per cent (-$49.0m) following a fall of 3.0 per cent (-$118.3m) in March 2023.

Original online sales in April fell by 7.2 per cent (-$262.2m).

Non-food online sales were down by $31.2 million in seasonally adjusted terms to $2.6 billion, while food sales in comparison dropped by $17.9 million to just over $1 billion.

In original terms, the proportion of online sales to total retailing fell from 10.5 per cent in March 2023 to 10.0 per cent in April 2023. According to the ABS, this proportion is the lowest since April 2022, when online sales also made up 10.0 per cent of total retailing sales.

Also in original terms, the proportion of online non-food retailing sales to total non-food retailing fell from 16.6 per cent to 16.1 per cent. The proportion of online food retailing sales to total food retailing fell from 5.7 per cent to 5.3 per cent.

Universal Store chief executive Alice Barbery says young consumers are facing serious pressure from rising rents and university fees, which will dent spending in coming months at the trendy youth apparel retailer.

Shares in Universal crashed 25 per cent after it flagged on Wednesday that while it remains on track to deliver record sales for the year ending June 30, subdued trading will persist into fiscal 2024, after noting that spending in April and May-to-date has tightened.

Ms Barbery told The Australian Financial Review that she has clear insights to the retailer’s core consumer given most of its staff are also about the same age.

“The two biggest costs for them are rent and HELP, used to be called HECS debt. They’re paying back their student loans, which are increasing at an extraordinary rate. And the rents if you’re on $70,000 a year – if you’re a young person and your rent goes up $150 a week, you’re going to feel it.

“We knew that customers would get more discerning, and they are getting more discerning, but they’re still coming through, and our foot traffic is still really good.”

The Brisbane-based company’s shares tumbled to $3.11, while fellow youth jewellery fashion chain Lovisa Holdings, backed by Brett Blundy, fell 7.7 per cent to $21.84. JB Hi-Fi, which also counts on the youth consumer, fell 2.8 per cent to $44.06.

Ms Barbery said a clear message for shareholders is the company is not overstocked, and has not had to dramatically discount to move inventory.

“I do think this is an overreaction,” she said referring to the sell-off. The retail sector is on the front line of cost-of-living pressures, and many are starting to show evidence of slowing spending.

Universal Store noted that its new Perfect Stranger retail format is performing strongly and continues to show potential for an attractive national roll-out of its top-selling brand. Cheap Thrills Cycle will deliver record sales and solid earnings, and emerging brand Worship has had an “encouraging performance”.

Ms Barbery said the store footprint is growing.

“I didn’t feel that this was a bad news story. It was just a story of a current economic climate and while youth customers are more shielded from economic downturns, they’re certainly exposed in these two areas,” she said.

Universal Store’s stock at June 30 is expected to be higher than the prior year, mostly because of the Cheap Thrills Cycle acquisition made last October, new store openings, and more inventory to support an upgraded distribution centre.

Group sales are expected to be in the range of $258 million to $261 million compared with $208 million in 2021, with Universal Store sales projected at $238 million to $240 million.

Underlying full-year sales for Cheap Thrills Cycle are expected to be $40 million to $42 million, compared with $35 million last year.

Group gross margins are expected to slightly exceed the 61.1 per cent delivered in 2022. Underlying earnings before interest and tax will come in between $39 million and $41 million, up from $32.6 million.

A total of 95 physical stores are expected to be open by the end of the year, made up of 77 Universal Stores, 8 Perfect Stranger sites, and 10 Thrills stores. Four new store openings have been pushed out until the first quarter of next financial year.

Universal Store will release its full-year results on August 25.

Sharemarket traders are positioning for a steep downturn across the Australian economy as small-cap retail companies skewed towards middle and low-income earners get dumped in anticipation of a rough 12 months ahead.

The alarm bells rang louder on Wednesday, after ASX-listed budget-fashion bellwether Universal Stores said shoppers cut their spending in April and May as cost of living increases – including rents and food prices – hurt young shoppers.

The gloom broadened on May 16 after ANZ-Roy Morgan’s weekly survey showed Australian consumer confidence fell to its lowest level since the peak of the pandemic shock in April 2020.

A record 56 per cent of families surveyed last week said they felt financially worse off than this time last year, with 37 per cent planning for “bad” economic times over the next 12 months. Overall, confidence levels were equivalent to those last recorded in the 1990-91 recession.

The survey spooked investors who started selling retail stocks before Universal Stores confirmed their suspicions on Wednesday.

Shares in the retailer of brands such as Birkenstock, Wrangler, Thrills, and Dickies fell 11 per cent in five trading sessions from May 15, before its profit warning sparked a further 23.9 per cent slide.

On Thursday, broker Citi slashed its earnings per share forecasts for Universal by 23 per cent for financial year 2023 and 24 per cent for FY2024.

It also lopped the retailer’s valuation by 42 per cent and warned that other retail stocks faced a broad de-rating as analysts valued them on lower profit multiples and higher discount rates given the increased uncertainty around future cash flows.

Foot Locker wobbles

In the US last Friday, shares in footwear and activewear giant Foot Locker plunged 27.2 per cent in a single trading session after it reported same-store sales fell 9.1 per cent in the March quarter, with total revenue down 11.4 per cent.

The share price fall was exaggerated as Foot Locker posted a strong final quarter for 2022, before a dramatic reversal in the first quarter of this year.

Some of the reversal could be linked to the rise in the US cash rate, which at 5.25 per cent is now higher than inflation at 4.9 per cent. This means financial conditions are now restrictive and the current value of money is worth more than future cash flows.

In Australia, March quarter inflation at 7 per cent remains well ahead of the cash rate at 3.85 per cent, which means financial conditions are still relatively loose, with room to turn restrictive.

The worries about higher discount rates, tighter monetary policy, rising living costs, and Foot Locker’s shocker are fuelling the sell-off elsewhere.

Shares in footwear and fast-fashion operator Accent Group are down 20 per cent over just five trading sessions and discount jewellery group and retail darling Lovisa dropped 4.8 per cent on Thursday to take its total loss over the past five trading sessions to 16.5 per cent.

Elsewhere, City Chic, Nick Scali, Michael Hill and Baby Bunting are all down this month as investors brace for poor trading updates.

Friday could bring more volatility as retail sales data for the previous month is expected to extend an accelerating downturn.

The boss of retail powerhouse Wesfarmers, Rob Scott, says there is no doubt consumers are finding it tougher today than six months ago, and is bracing for an even more difficult half with rising costs continuing to pressure both consumers and businesses.

The head of the Perth-based conglomerate, which owns Bunnings, Kmart and Officeworks, told investors at its Sydney strategy day that “the honeymoon is very much over” after the past few years of government handouts and ultra-low interest rates.

“Household costs in terms of mortgage rates, power costs, the costs of doing business in businesses are going up, which will lead to potentially more inflation,” he told The Australian Financial Review. “What that means is that consumers are being more value conscious.”

Mr Scott said shoppers were trading down to cheaper products, and population growth accelerating out of COVID-19 was positive for many of Wesfarmers’ businesses, which range from Priceline-parent Australian Pharmaceutical Industries, to chemicals and fertilisers.

On Tuesday, Wesfarmers skipped making a higher offer for listed Botox clinics operator Silk Laser Australia. API had offered $3.15 cash per share for Silk but was topped by Hong Kong’s EC Healthcare with a proposed a $3.35 a share offer. API is separately in talks with InstantScripts, according to Street Talk, with a possible deal to be struck as soon as next week.

Bunnings, Wesfarmers’ biggest earner generating $17.8 billion in sales and $2.2 billion in earnings, signalled opportunities in pets and the rollout of its commercial power tools business, Tool Kit Depot. Its Beaumont Tiles has expansion plans into Western Australia over the next five years.

Hardware chain boss Mike Schneider said Tool Kit Depot was playing a more important role in building business-to-business relationships. “We see big opportunities for growth in this area,” he told investors.

Mr Schneider said maintaining Bunnings’ low-costs was pivotal, with a nod to trials using robots to optimise stock replenishment with overnight scanning and electronic shelf labelling.

Its expansion into pet care will help drive sales at Bunnings, while sales of hardware were flattening. There is strong growth in the commercial business which constituted about 37 per cent of group sales, he said.

Across the economy, hardware industry sales in March went backwards, according to Australian Bureau of Statistics data.

Anko overseas

The boss of Wesfarmers’ discount chain Kmart, Ian Bailey, told investors the retailer was targeting European expansion for its home brand Anko. In Canada, Kmart launched Anko with Hudson Bay Company and a store-in-store concept with Zellers, which includes apparel, toys, pets and home.

Mr Bailey is targeting Gen Z and beauty as key areas of growth for Kmart: “Beauty is a category where we see a strong consumer demand for value, especially amongst younger customers.”

Its slimmer network of Target stores is now profitable. Overall, Mr Bailey said input costs such as cotton are falling, but currency was the big unknown. With power and wages bills increasing, productivity measures such as better rostering were important.

Wesfarmers’ net capital expenditure for the 2023 financial year will be between $1.1 billion and $1.2 billion. Mr Scott believes Wesfarmers has more growth opportunities across the portfolio today than in the past two decades.

“Understandably, there’s a lot of focus on the consumer given we have a number of retail businesses, but sometimes what people overlook is that we’ve invested over a billion dollars in a new lithium business that is going to start generating cash flows for our shareholders next calendar year. That’s a really exciting opportunity for our group,” he said.

Before the strategy day, JPMorgan analyst Bryan Raymond downgraded his earnings per share forecasts for next financial year and 2025 by 2.9 per cent and 2.5 per cent, following commodity price updates for its WA lithium project Mount Holland and the exit from Coles. He has a $47 target price and an “underweight” rating.

Wesfarmers chief executive Rob Scott found himself in an unusual position at the group’s investor strategy day on Tuesday, effectively arguing that what’s bad for the country will be good for his conglomerate.

Scott says the pandemic honeymoon, where waves of government stimulus and low interest rates helped inflate the sales and profit margins of many companies, is well and truly over. Now the country faces a big squeeze.

On one side, Scott says consumers are hunting for lower prices and value in a way they haven’t done for a decade, trading down to cheaper options with retail categories and to so-called value retailers such as Wesfarmers’ flagship Bunnings and Kmart chains.

At the same time, Scott says business is being pressured by an escalation in wages, the post-COVID drop in productivity and what he describes as a series of policy changes that are reducing employer flexibility.

Wesfarmers has been waiting for this moment for 18 months. At the start of the pandemic, Scott made it clear the group would not look to use the consumer spend-a-thon it generated to plump up margins, and, as a result, he believes the conglomerate’s focus on keeping prices low is set to pay off.

“We’ve been playing the long game. Maybe we left a bit of margin on the table, but it was the right thing to do to ensure that we were in good shape for the long term and retaining the trust of customers,” Scott tells Chanticleer on the sidelines of the investor day.

“So although some economic conditions are looking more challenging, I feel that we’re incredibly well positioned across our businesses at the moment.”

Not giving up on growth

To be clear, Wesfarmers isn’t giving up on growth, and on Tuesday its Bunnings and Kmart chains outlined plans to chase total addressable markets of $100 billion and $103 billion respectively. Officeworks and the group’s new health business will go after a further $98 billion worth of total revenue.

But the millions Scott is investing in productivity initiatives across the group – including increased automation, greater use of customer data to drive personalisation of offers, supply chain initiatives and a more connected approach to digital sales across the chains than we’ve seen from Wesfarmers’ retail business – speaks to the tougher environment he’s bracing for.

While inflation areas such as freight and wholesale products have faded, Scott sees other costs of doing business rising. Wages are obviously a key contributor; the pay deal Bunnings just reached calls for pay rises of 10.5 per cent to 40,000 staff over three years and is a good example of the inflationary pressures still coming through.

But while labour costs rise, Scott says productivity has fallen in the post-COVID environment. Partly this reflects higher rates of absenteeism and some labour shortages, but Scott says the advent of flexible work is having an impact, too. “We support flexible work as a driver of productivity, but working from home en masse does create some challenges with productivity.”

While Scott acknowledges that underinvestment across the economy is also weighing on productivity, he worries that a suite of policy changes are also creating roadblocks.

At a federal level, Scott worries the Albanese government’s “same job, same pay” policy and proposed changes to both the regulation of the gig economy and rules around casual workers will reduce the flexibility of employers.

Victoria’s $1b tax grab

And he remains deeply unimpressed with the increases to payroll taxes that the Victorian government announced last week.

“The Victorian government has just taken essentially $1 billion that could have otherwise been spent on increasing wages and taken that to their account.”

Two big growth bets stood out from Tuesday’s presentation, in two of the hottest sectors of the market.

Wesfarmers put the total potential market for its nascent health business at $40 billion a year, but getting there will require work. The boss of the division, Emily Amos, emphasised that her first task is to lift the performance of the Australian Pharmaceutical Industries business it acquired last year, including “resetting” that business’s wholesale offering and “reinvigorating” the Priceline retail chain.

More “re” words usually indicate more work ahead – and more risk.

Wesfarmers also decided on Tuesday not to match a higher bid lobbed last week for would-be takeover target Silk Laser Clinics; Scott says Amos and her team will continue with due diligence and monitor the deal, but Wesfarmers won’t overpay for businesses that need lots of work. Given the size of the renovation job Wesfarmers has under way at its loss-making online retailer Catch Group (another “re” word), that’s probably wise.

Next calendar year will mark the first revenue from Wesfarmers’ lithium joint venture in Western Australia with Argentine giant SQM.

Clearly, things are moving quickly in the critical minerals sector, as shown by the fact Wesfarmers and SQM are studying an expansion of their mine and processing facility before the first stage is completed.

But Scott says Wesfarmers’ business development team is assessing other ways into the critical minerals value chain. For now, he’s focused on where Tesla founder Elon Musk says the big dollars are to be made: refining lithium for batteries.

“That’s really the best opportunity for shareholders.”

Danish luxury brand Ganni is set to open its first Australian flagship store in Sydney on June 2.

The Copenhagen-based ready-to-wear brand is known for its ‘Scandi 2.0’ sense of style. It operates 37 retail stores across Europe and the US and delivers internationally to 35 countries including Australia, South Korea and Canada.

The flagship, located in The Galeries on George Street, takes inspiration from the family home of Ganni’s founders, husband-and-wife duo Ditte and Nicolaj Reffstrup.

It is fitted with vintage furniture, Artek stools made from repurposed Ganni fabrics, recycled plastic waste podiums, retro vases and a selection of art from female talents.

“Sydney is such a vibrant and diverse city, and we’re honoured to now be a part of it with our first flagship store,” said creative director and founder, Ditte Reffstrup.

“I have always felt a special connection to our Australian community and I am so humbled by their loyalty. We are super excited to bring a little bit of Copenhagen to Sydney.”

To celebrate the store opening, the brand has commissioned local artist and entrepreneur, Carla Uriarte, to create an artwork that will live permanently in the store.

Rebecca Vallance has partnered with Qantas Airways to create a limited-edition collection of business-class pyjamas and amenity kits. 

The lines – to celebrate the resumption of Qantas’ flights to New York post-Covid – feature the upgraded New York Route’s flight numbers QF3 and QF4 as well as a monogram of the Qantas ‘Roo and Rebecca Vallance’s logo. The collection comes in a colour scheme of blues with subdued Art Deco undertones of the Waldorf Astoria hotel. 

“New York has always felt like a second home to Rebecca Vallance, and we hope to be visiting even more with the opening of a brick-and-mortar retail store in SoHo in the near future,” said founder and creative director, Rebecca Vallance. 

“We curated the bespoke Rebecca Vallance design as a homage to one of the world’s most vibrant and exciting cities, with inspiration from our latest collection – ‘Avenue Astoria’. ” 

The printed Rebecca Vallance gowns are also made of shiny Italian fabric with Art Deco-inspired motifs, alongside the love heart diamante belt. In addition, the dresses on display will be a part of a raffle for a custom couture gown that will be given away to a Qantas Frequent Flyer, who purchases a Rebecca Vallance item from either Qantas Marketplace or directly from Rebecca Vallance.

A limited number of Rebecca Vallance Qantas Pyjamas and Amenity kits will also be available for purchase via points redemption at Qantas Marketplace. 

Trade has been more challenging for the global jewellery industry in the second half of FY23, according to New Zealand-born retailer Michael Hill.

This has been particularly noted in Australia and New Zealand, with the latter impacted by significant weather events and a recent resurgence of security incidents and related costs.

Michael Hill added that third-party transactional data for the total Australian retail jewellery segment has shown a double-digit decline in sales for the first four months of the second half.

The Australian jeweller recorded a group sales drop of 3.5% for the second half, while its total group sales for FY23 year-to-date are up 5.5%.

“Despite the more challenging market conditions and the resulting impact on many retailers, I’m encouraged by the Michael Hill performance, as we continue to take market share in our category,” CEO and managing director Daniel Bracken said. “Looking forward to FY24, I’m energised by the pipeline of strategic initiatives that underpin our growth aspirations for the group.”

Meanwhile, the brand has taken over operational control of its newly acquired Bevilles from today, June 1.

Initial steps for the Bevilles’ store rollout growth strategy are reportedly progressing well, with Michael Hill noting that offers of new locations from a number of landlords have been tabled and are currently being considered to prioritise the highest potential new locations.

The company is planning to open 80-100 Bevilles stores by FY28, including further expansion in New Zealand and Canada where Michael Hill already operates. This could also include coverting existing Michael Hill stores into Bevilles locations where the demographic aligns.

Bevilles currently operates 26 Australian stores across Victoria, New South Wales and South Australia. Michael Hill operates 148 across all Australian states and territories, along with 47 in New Zealand and 86 in Canada.

The financing of its Bevilles expansion, alongside other company initiatives, comes from a new three-year $90 million credit facility from ANZ and HSBC.

As well as expanding Bevilles store network, the facility will fund a new digitally-led 'Bespoke' diamond jewellery brand, further rollout of its gold recycling platform, continued international digital expansion and additional organic strategic growth initiatives.

“I’m excited the Bevilles Jewellers acquisition has completed and welcome the Bevilles team members to the Michael Hill family,” Bracken said.

“This acquisition not only demonstrates the Board’s commitment to strategic investment and growth but also provides a platform for significant store network expansion and delivery of incremental earnings.”

Australian retail group Brand Collective has signed on Canada Goose, with plans already underway for the performance luxury brand in the local market.

The venture will operate under a Brand Management Agreement, with Brand Collective opening the brand's first two Australian stores in Melbourne and Sydney this year, as well as launching a dedicated eCommerce platform in October, and rolling out select wholesale distribution.

“Partnering with a world-class luxury brand like Canada Goose gives us a great sense of pride,” Brand Collective CEO Eric Morris said. “Canada Goose is known for being an experience-driven and storytelling brand, immersing consumers in its heritage and enabling them to thrive in the world outside.

“With Brand Collective’s unique ability to bring brands to life, Australians can now engage with all that Canada Goose has to offer in an unfiltered way.”

Founded in 1957, Canada Goose’s core down-filled products are manufactured in Canada, with an overall range including parkas, lightweight jackets, apparel, accessories and footwear for men, women, and children.

It is positioned in the luxury retail sector and identifies the likes of Moncler as a key competitor.

Canada Goose marks Brand Collective’s first foray into luxury.

“I’m thrilled to be expanding our presence in Australia, bringing Canada Goose to even more consumers,” Canada Goose Chairman and CEO Dani Reiss said. “Australia is a world-renowned destination for luxury, and we’ve seen how strongly our brand is resonating in the market.

“With our long-term strategy in place and an expert partner in Brand Collective, I look forward to this next chapter of the Canada Goose story.”

Canada Goose sells in over 60 countries and operates more than 50 retail locations across North America, EMEA and APAC.

As a global publicly listed company, it has a market cap size of $2.6 billion Canadian dollars and a total revenue $1 billion Canadian Dollars.

Australian retail sales were up 2.6% year on year (YoY) in April 2023 according to the latest Mastercard SpendingPulse, despite declines in most categories.

Jewellery reported the largest decline of 21.1% in spending, with apparel down 9.1%.

Other categories reporting declines included home furnishings (down 17.5%), electronics (down 15.9%), lodging (down 14.8%) and fuel and convenience (down 8.9%).

The total growth in April spending was driven by grocery (up 8.5%) and restaurants (up 8%) - the only categories to record growth in April 2023.

Australian Retailers Association CEO Paul Zahra said the results suggest the country’s cost-of-living crisis is now deterring retail spending.

“Most categories are recording significant declines now compared to 2022, with households across Australia saddled with mounting cost-of-living pressures and consecutive interest rate rises,” Zahra said.

“We believe that April’s sales growth is predominately driven by price increases on food essentials which make up the lion’s share of retail spending.

“Most retailers thrived last year, with low interest rates and high household savings leading to robust spending growth. It isn’t surprising to see these declines today when compared to a successful period in 2022.”

Zahra said with discretionary purchasing slowing significantly, it will be a challenging environment for businesses - “especially those on tighter margins.”

“Retail businesses are simultaneously battling rising operating costs associated with increasing cost of debt, fuel, energy, labour, supply chains and rent.”

Mastercard SpendingPulse measures in-store and online retail sales across all forms of payment.

Real estate, healthcare stocks and retailers skewed to low-income earners are the three main sectors of the sharemarket set to get a boost from the Albanese government’s second federal budget, thanks to a $15 billion welfare package and policies targeting net migration and first home buyers.

While brokers said the budget, which delivered its first surplus of $4.2 billion since 2007-08, had little impact on the long-term outlook for the Australian sharemarket, in the short term, equities could rally.

Companies from Mirvac to Ramsay Health Care were just some of the stocks named in the flurry of post-budget equity reports.

Macquarie Research noted that Australian equities tended to rise more in the month after a midterm budget – meaning outside of an election year – by some 1.4 per cent, and 1.7 per cent if it is delivered by a Labor treasurer. That compares with a fall of 0.7 per cent if delivered just after an election, or a drop of 1.8 per cent if delivered before.

Even so, the broker said it was more concerned with what’s happening further afield, with its portfolio defensively positioned ahead of an expected US recession.

The “budget does not change our equity strategy view,” Macquarie strategists wrote in a report to clients. “There were no major surprises, and the surplus looks short-lived.”

Despite the broker predicting a deficit next year, “we still expect an earnings downgrade cycle over calendar 2023”.

“While many central banks are getting closer to the end of their hiking cycle, we think the lagged effect of past hikes will be an earnings headwind.“

UBS strategist Richard Schellbach also said that while the budget supported low-income households, forecasts for equity market earnings growth, market targets and sector positioning remained unchanged.

Still, he named some potential net winners from the budget, starting with the funding support announced for low-income households.

This includes the $1.5 billion energy bill relief fund, $1.3 billion allocated for household upgrades to assist 111,000 homes, and the $40 fortnightly boost to JobSeeker, Austudy and Youth Allowance payments.

“Stocks that could be positively impacted via their customer skew to low-income households include, Domino’s Pizza, Coles, Wesfarmers (through Kmart business), and Super Retail Group,” he wrote.

Mirvac, Ramsay Healthcare

Building material suppliers CSR and Boral and developers Stockland and Mirvac, along with companies such as Domain (Nine Entertainment, publisher of The Australian Financial Review, is Domain’s biggest shareholder) and REA Group, could also benefit from the government’s assistance for first home buyers, Mr Schellbach said.

From July 1, access to the Home Guarantee Scheme will be expanded to allow any two people to buy an eligible home with just a 5 per cent deposit.

Major developers, including Lendlease, could also see “marginal net positive developments” from the halving of the managed investment trust withholding tax to 15 per cent for newly constructed build-to-rent developments, and an increase in the capital works tax deduction rate to 4 per cent, from 2.5 per cent, at a cost of $30 million.

More broadly, UBS noted that polices aimed at increasing net migration – which is set to jump by 1.5 million over the next five years – and skilled migrants, would help tackle skills shortages which would be a boost to a number of sectors that were hard hit from border closures during the pandemic.

These include transport, food production, healthcare, engineering and contracting sectors. Telcos, including Telstra and TPG, would also get a boost from a step-up in migration numbers, the bank noted.

Strategists at RBC said any boost to net migration would benefit healthcare companies such as Estia Health, Regis Healthcare and Ramsay Health Care.

The broker added that extending the exemption of international students from the fortnightly cap on aged care work hours would continue to assist with staffing, though it noted that it was only until December 31.

Additional funding for Medicare bulk billing would likely indirectly benefit diagnostic companies, including Sonic Healthcare, Healius and Capitol Health, RBC wrote. “Improved access to primary care should lead to more volumes of diagnostic testing,” it said.

Goldman Sachs also noted that the budget allocated $11.3 billion over four years to fund a 15 per cent increase in the award wages for about 250,000 aged care workers.

Elsewhere, companies operating in the renewable energy sector were in focus, though some brokers were not overly enthusiastic.

In its post-budget commentary, Barrenjoey cited the government’s $4 billion investment in renewable energy, including $2 billion for a new program to accelerate large-scale hydrogen projects.

“The energy transition did feature in the budget, although initiatives remain
somewhat piecemeal and materially smaller than America’s Inflation Reduction Act and the EU’s Green Deal,” it wrote.

Westfield owner Scentre’s efforts to step up customer events is paying off handsomely, with a 14 per cent lift in foot traffic so far this year accompanied by a similar-sized increase in sales by its tenants.

Chief executive Elliott Rusanow said customers visits had hit 163 million over the first 17 weeks of the calendar year, an increase of 20 million or 13.7 per cent over the previous corresponding period.

Scentre has focused on winning people’s time and attention through events and tie-ups, such as its program celebrating Disney’s 100th anniversary, confident that  the increased foot traffic will pay off for its tenants and its own income ultimately.

“Our focus is providing people with more reasons to visit our destinations and so far this year, we have activated more than 3300 events,” he said in the shopping centre owners’ March quarter update.

“Our business partners achieved $6.4 billion of sales in the quarter, up 14.4 per cent compared to the corresponding quarter in 2022. On a rolling 12-month basis to 31 March 2023, our business partners achieved record sales of $27.5 billion.”

While January of last year was disrupted by a COVID-19 outbreak, Scentre sales figures show healthy gains when compared to the corresponding, pre-pandemic results in 2019.

Total sales were up 14.4 per cent for the three months to March and specialty sales were 12.1 per cent higher, compared to last year. Compared to the 2019 first quarter, for the three months, total sales were 11.2 per cent better and specialty sales were up 14.9 per cent.

JPMorgan analysts described the sales figures as a healthy “acceleration of growth” compared to the 2019 trading results.

Scentre has reconfirmed its full-year earnings guidance of funds from operations
in the range of 20.75¢ to 21.25¢ per security for 2023, which would represent growth of 3.4 per cent to 5.9 per cent. It expects to deliver distributions of at least 16.5¢ this year 2023, an increase of 4.8 per cent.

Scentre does not disclose at its quarterly updates its leasing spreads, a key industry metric which describes the difference between old and new rents and is a potential indicator to future income growth. Those spreads, while negative, were showing signs of improvement through last year.

Other major ASX-listed mall owners including Vicinity and GPT have reported positive spreads over the March quarter, JPMorgan analysts noted.