Warmer weather puts chill on apparel sales

Haley Van Leeuwen
Haley Van Leeuwen
Warmer June weather hurt apparel spending, a key sector for New Zealand listed retailers, Forsyth Barr broker Haley Van Leeuwen said yesterday.

The electronic card transactions data, released this week by Statistics New Zealand, showed core retail sales up 3.2% in the year ended June, the weakest year-on-year growth in about nine months.

The New Zealand consumer economy continued to show gradual growth, although most retailers remained cautious on the outlook, Mrs van Leeuwen said.

The Warehouse Group and Kathmandu highlighted the warmer-than-usual winter weather which had hurt spending.

''This is reinforced in the electronic card transactions data, with June particularly weak for apparel retailers.''

To date, July was tracking in line with five-year averages. However, temperatures were materially colder than July 2013, she said.

While it was still early in the month, the colder weather was positive for retail sales. However, sales would come at lower margins given retailers were already well into winter sale discounting periods.

The New Zealand winter had been milder than usual, with May and June temperatures above last year and five-year averages. Maximum daily temperatures averaged 17.7degC in May and 15.6degC in June, compared with the five-year average of 16.4degC in May and 14degC in June.

Mrs Van Leeuwen said the rapid growth of online retailing was driving major changes to the traditional retail model.

''We expect further strong growth in online retailing in the medium-term, particularly as technology improves and geographical barriers continue to be eroded.''

Kathmandu was the retailer best-placed listed to benefit from online retailing, while Hallenstein Glasson was most at risk, she said.

Online spending in New Zealand amounted to about $3.8 billion in 2013, up more than 15% on the previous corresponding period. Online spending continued to report rapid growth and had averaged more than 15% growth over the past four years, compared with just 3% growth for traditional retail.

About 60% of online retail purchases were made from domestic retailers and the remaining 40% from offshore pure play and multi-channel retailers.

Purchases from offshore retailers were growing rapidly, Mrs Van Leeuwen said.

''We expect this higher rate of growth is being driven by the strength of the New Zealand dollar, better choice through offshore sites, increased consumer online literacy and marketing tactics such as free shipping and no-obligation returns.''

Forsyth Barr's preferred picks in the retail sector were Michael Hill International and Restaurant Brands, with an outperform rating. Both companies had a high risk rating to reflect the near-term risk involved.

Briscoe Group and Kathmandu were rated neutral, with both companies fully priced. The rating on The Warehouse, which had yet to demonstrate material positive returns from its major store reinvestment programme, was underperform.

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