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Phones, furniture and fine wine. These are some of the products the country’s biggest retailers expect to restock, even as sales slow this year amid cost of living pressures – but they’re also likely to become cheaper as companies fight to capture consumers.

Patrick Coghlan, chief executive of CreditorWatch, said company announcements indicated softening sales in the first quarter of this year, but that it would likely drag out across the year.

“We’re seeing green shoots of consumers tightening their belts,” he said. “JB Hi-Fi, which is the pin-up child of retail, flagged that their sales were down in January, suggesting the downturn is in small-ticket as well as big-ticket items. The consensus is that there’ll be at least 12 months of pain.”

But in good news for consumers, CreditorWatch chief economist Anneke Thompson said price pressures would likely ease this year.

“We should see further drops in the rate of price growth as data is now being measured off 2022 figures, when price rises had already kicked in,” she said.

Last week, the country’s largest electronics and whitegoods retailer said it anticipated sales to slow this year, despite posting a record double-digit jump in half-year profits.

JB Hi-Fi boss Terry Smart said that there would likely be a ramp-up in discounting as retailers raced to capture consumers amid rising interest rate pressures.

“Customers are still spending more than they were at the same time last year, but are starting to become more cautious with their spending,” he said. “We’re seeing some on-floor discounting start to build, and we expect some of those elevated margins, especially in JB Hi-Fi, return to more historical levels.”

But phones and computers will remain in demand, Smart said, as they have become staples in day-to-day life. “People will continue to spend, upgrade and replace them,” he said.

Sales growth in JB Hi-Fi’s Australian business dropped to 2.5 per cent in January, compared with 4.3 per cent at the same time last year, and 9.1 per cent in the first half.

Online furniture retailer Temple & Webster is also looking towards smaller price tags, after it revealed a 7 per cent slowdown in sales in the first five weeks of the year and a 46.7 per cent drop in first-half net profits.

Boss Mark Coulter said furniture was a “less discretionary” area of spending, but that as the cost of living increases, Temple & Webster will tailor to its core customer base of Millennials, who will be hunting fiercely for the best deals.

“We don’t think there is going to be a mass migration to entry-level products... but definitely we are looking to import and promote products which customers can afford,” Coulter said last week.

Meanwhile, the boss of drinks retailer Endeavour Group said inflation wasn’t putting a cork on people’s drinking habits.

Last month, the company snapped up iconic Margaret River winery Cape Mentelle from luxury goods behemoth Moet Hennessy, as it expects consumer demand to hold up.

Relative to other indulgences, the company’s chief executive, Steve Donohue said, a bottle of gin or higher-end wine “still remains affordable.”

Alcohol prices, up 4.2 per cent in November, remained lower than food prices (up 9.4 per cent) and the broader consumer price index which put inflation at 7.3 per cent.

But Donohue acknowledged that the sales outlook remained uncertain, and that Dan Murphy’s would lean on the lowest price guarantee to give it a competitive edge.

Two businesses benefitting from consumers’ penny-pinching are low-cost retailers Bunnings and Kmart, owned by retail giant Wesfarmers.

The conglomerate’s chief executive, Rob Scott, said customers were chasing value as interest rates took a toll.

“We are starting to see some changes in behaviour – we are starting to see a greater orientation by customers to value,” he said. “We have retained the trust of customers by keeping our prices low – that seems to be resonating with customers.”

Wesfarmers reported a 14.1 per cent jump in first-half net profits last Wednesday, and said that results through the first five weeks of the year had been “broadly in line” with growth reported for the first half.

The slew of retail earnings last week also served as a clear reminder that shoppers still open their wallets for everyday essentials, even when the cost pressures are reaching boiling point.

After negotiating years of COVID-induced retail closures, discount department store Kmart emerged this week ready to welcome budget-conscious shoppers with open arms. Parent company Wesfarmers confirmed Kmart Group’s revenue jumped 24.1 per cent to $5.7 billion in the six months to December.

Kmart boss Ian Bailey said the company has seen customer growth across low, middle and high-income earner demographics.

“We’re seeing strong growth in home goods, strong growth in toys, as well as strong growth across clothing – which is probably different to the [broader] market,” he said.

Record sales figures at Rebel and Macpac operator Super Retail group also showed there’s certain spending that shoppers won’t cut back on. Trends including the return to organised sport and Australia’s wet summer helped drive demand for sporting apparel and rain gear, while Supercheap Auto’s results showed nobody was scrimping on car maintenance.

“If the light bulb is broken in a brake light, I’ll get a new brake light,” chief executive Anthony Heraghty said. “We have characteristics of the business that makes it quite defensive.”

The South African owner of David Jones will hit the exit aglow this month, after reporting revenue growth in the luxury department store for the six months to December that was more than quadruple its annual sales in 2019, and ahead of an expected softening in consumer demand.

Roy Bagattini, chief executive of Woolworths Holdings, said its Australian holdings including David Jones and middle-market clothing retailer Country Road were thriving despite a challenging backdrop.

“What you’re seeing is a level of resilience in these businesses that is somewhat counterintuitive to a lot of the macro contextual indicators and news you see out there,” he said.

“Whether it’s house prices, record high-interest rates or the level of inflation, you would expect those effects to play through into a softening of consumer demand, but we haven’t seen it in the first period of this second half.”

While David Jones’ turnover and concession sales in the half year to December increased by 18.5 per cent compared with the previous year’s corresponding period, the company said it was not comparable because of government-imposed lockdowns in 2021. Instead, it pointed to an 8.8 per cent year-on-year increase in sales in the last six weeks of the half.

The results come after Sydney-based private equity firm Anchorage Capital Partners bought David Jones in December. Anchorage is set to take over the operating business of David Jones by the end of this month.

Woolworths Holdings – distinct from Australian supermarket group Woolworths – purchased David Jones in 2014 for $2 billion. After a challenging period that included write-downs worth more than $1 billion across 2018 and 2019, Bagattini said David Jones was now the most profitable it had been since the company acquired it.

David Jones’ generated more than 9.3 billion rand ($750 million) in revenue in the six months to December, which is more than four times the $170 million it generated over the course of 12 months in 2019. David Jones grew by 13.6 per cent in the first eight weeks of the year.

Meanwhile, sales in Country Road Group grew 8.5 per cent year-on-year in the last six weeks of trade.

Bagattini said that while online sales growth had moderated, customers were increasingly returning to its brick-and-mortar stores, particularly in business districts.

“Online businesses remained strong, but the growth there has come off as customers have gone back into stores,” he said. “We’ve seen a good uplift in foot traffic, especially in our CBD stores.”

But the Woolworths Holdings boss said he expected the trading environment in the second half of the financial year to prove more challenging.

“We do expect a softening overall in terms of demand and some of the lag effect of interest rates and high mortgage payments,” he said.

Bagattini said Woolworths Holdings would maintain the coveted Bourke Street store in Melbourne, but that the company would look to offload it eventually.

“There’s been an extensive amount of interest in the building, and we will float it, but we’re in no rush to sell it anytime soon,” he said.

The chief of Betty’s Burgers’ parent company believes the premium burger chain will outcompete pricier rivals such as Grill’d as it seeks to open 20 to 25 new stores a year in Australia, despite a weakening economy, and kickstart environmental initiatives under new private equity owners.

Nishad Alani, the boss of Retail Zoo, which operates food chains Betty’s Burgers, Boost Juice, Cibo Espresso and Salsas, said consumers sought “affordable indulgence” in times of uncertainty.

“You go to some of the fast-food players – they’ve kind of given up on the whole eating experience, they’ve completely gone takeout, delivery and drive-thru, that’s all they want to do. But that’s not what the core consumer wants to do,” Alani said.

Australia is approaching a spending cliff as festivities of the Christmas and New Year period wear off. With the cost of living hitting 20-year highs, Australians are expected to spend less on luxuries and non-essential goods.

Despite this, Alani said people would remain hungry for establishments more upscale than fast food and believes Betty’s Burgers is poised to do better than other premium burger chain competitors such as Grill’d. Grill’d’s cheapest burger is $12.50, 60¢ more expensive than Betty’s at $11.90, a small sum that Alani said would make a difference to discerning diners.

“We think we provide a better service, a better guest experience, better value, and again, this is up for debate – a better product,” said the Retail Zoo boss, who has taken a swipe at competitors before.

Betty’s Burgers was founded in 2014 in Queensland’s Noosa and has grown to 54 stores. It was one of the few beneficiaries of the pandemic lockdowns, increasing sales through high takeaway volumes.

This month, Sydney-based private equity firm Adamantem Capital signed the papers to acquire a 70 per cent stake in Retail Zoo, making it the company’s third private equity owner in a decade. Retail Zoo has been owned by Boston-based Bain Capital, which also owns Virgin Australia, for nearly a decade after buying it from The Riverside Company in 2014. Adamantem has valued the business at $350 million.

Retail Zoo will focus on aggressive store rollouts around the world and sustainability initiatives such as packaging and waste reduction.

“We plan to open 40 to 50 stores every year as we have for the last couple of years, and we expect half of those will be in the domestic market and half of them will be in the international market,” said Alani.

Adamantem Capital managing director Georgina Varley said it would otherwise be “business as usual” for Betty’s Burgers and Boost Juice staff and customers and expressed confidence the brands would perform well in tighter economic conditions.

“They’ve gone from eight stores to 54 stores over the past five years, and we’re keen to continue the store rollout, particularly as the brand grows,” Varley said about Betty’s Burgers.

“What we’ve seen is that Boost is a very resilient brand. It’s been around for 20 years and has weathered lots of different changes over time, and it’s continued to grow through COVID, it rebounded very well.”

“Similarly, Betty’s is a fast, casual brand which is well-positioned to be resilient through potentially tougher economic times.”

Electronics and furniture retailer Harvey Norman Holdings has reported a 15 per cent fall in profits in its December half.

The company owns and operates Harvey Norman, Domayne and Joyce Mayne brands.

Total system sales revenue for the year was $4.98 billion while company-operated revenue reached $1.47 billion.

EBITDA fell 8 per cent to $694 million while tax-paid profit slumped 15.1 per cent to $365.9 million.

The group’s overseas retail profitability declined 22.5 per cent to $28.9 million primarily due to difficult trading conditions in New Zealand while its total assets increased to $7.81 billion, up 7.8 per cent during the half.

Harvey Norman chairman Gerry Harvey said the business will continue to assist each franchisee with the necessary tools and digital structure to invest in their customers.

“Amid the macroeconomic headwinds of the past year, we have grown our integrated retail, franchise, property and digital business across eight countries to nearly $5 billion in system sales for the current half-year period.”

The company plans to recommence its offshore expansion plans, growing its store footprint in Malaysia to 80 stores by the end of 2028.

Department store chain Myer is seeking to divest three of its best-known clothing brands and has hired KPMG Corporate Finance to run a sale process, Street Talk can reveal.

It is understood high-end fashion label Sass & Bide – on which Myer spent $42.3 million to purchase a two-thirds stake in 2011, in a move that caused rival David Jones to dump the label – is on the block, alongside Marcs and its sister brand, David Lawrence.

Major local fashion labels have becoming increasingly attractive to international buyout groups and cashed-up family offices, culminating in the purchase of a majority stake in Zimmerman by Advent International last year in a deal that valued the brand at as much as $1.75 billion. Gina Rinehart and Andrew Forrest have also splashed out, acquiring heritage brands Driza-Bone and RM Williams respectively.

A sale of the three high-profile brands would mark the next stage in an overhaul of the struggling department chain, which has been shedding stores as it attempts to reposition the business under new chairman Ari Mervis.

KPMG started contacting potential buyers just before Christmas, and a sale flyer was sent to interested parties in the past fortnight. The corporate adviser’s consumer team, led by dealmaker Luke Lawrentschuk, is expected to run a two-stage process. The three brands make about $100 million in turnover, sources said.

Myer, capitalised at $620 million, has launched the sale to continue to drive strategic alignment, with the company keen to move away from owning vertical brands, sources said. Of note, Sass & Bide is being sold as a separate entity to Marcs and David Lawrence.

WAM Capital portfolio manager Oscar Oberg told this column at the weekend that the mooted sale process was “strategically sound” and would allow Myer’s board to “focus on what they do best which is department stores”.

“We will see what management present at their result, but these brands may have been impacting earnings, so any sale would be welcome and would strengthen the balance sheet,” Oberg said.

On trend

Sass & Bide, now wholly owned by Myer, was founded in 1999 by friends Sarah-Jane Clarke and Heidi Middleton. It’s proven incredibly resilient in the face of foreign retail giants, like Zara and Topshop, invading Australian shores and has benefited from an expansion of the label’s freestanding and concession store network. Marcs, founded in 1984 by the late Mark Keighery, was once the retailer du jour for menswear, famous for its colourful cotton shirts and well-tailored suits.

Outgoing CEO John King has spent the past six years implementing his “customer first” plan, shrinking floor space and closing stores, helping transition Myer into a profitable business that has returned to paying regular dividends. The shares are trading at 74¢, above where they were when King took over in 2018 when the stock was sitting at 40¢.

On February 6, Myer handed down a trading update that surprised on the upside, forecasting inte

rim sales down 3 per cent to $1.829 billion, or flat on a same-store basis. First-half net profit for the 26 weeks ended January 27 will be $49 million-$53 million, albeit dented by more discounting and inflationary cost pressures.

Myer operates 56 department stores and its online presence now represents more than 20 per cent of total sales of $3.36 billion in fiscal 2023. Its loyalty program, Myer one, has more than 7 million members.

Lawrentschuk – widely considered the consumer sector’s go-to adviser – is expected to call for first-round bids in the first half of March. Clayton Utz is on legals, sources added.

Kmart Group has reported a 24.1 per cent increase in revenue for the first half of the financial year, generating $5.7 billion in the six months to December.

The Wesfarmers-owned group, which includes Kmart and Target, has seen earnings increase 114 per cent to $475 million.

Wesfarmers MD Rob Scott said retail trading results through the first five weeks of the second half are broadly in line with this result, supported by strong growth in areas most affected by COVID-related disruptions in January 2022.

“Kmart Group’s significant earnings result reflected strong operational execution, with comparable sales and volume growth, in addition to the impact of a normalisation in trading conditions following significant COVID-related restrictions in the prior corresponding period."

Kmart Group is positioned to meet changing consumer demand this year, as elevated inflation and higher interest rates result in more value conscious households.

“Customers continued to respond positively to Kmart’s lowest price positioning, and sales growth was achieved across all categories," Scott confirmed. 

"Target’s performance reflected continued improvements in the product offer, particularly in the focus categories of apparel and soft home.

"With more normal trading conditions during the half, the full benefits of the significant network change program undertaken across Kmart and Target were also able to be realised.

“Kmart Group continued to improve the digital experience for customers during the half, with ongoing investments in the Kmart and Target apps, and the launch of instore benefits for OnePass members.

"Kmart also continued to progress strategic initiatives to profitably grow its share of wallet, develop its data and digital assets, and digitise its operations.”

ANZ-Roy Morgan Consumer Confidence has dropped below its lowest point in 2023 by another 5.5pts to 78.1 this week after the RBA increased official interest rates to the highest rate since October 2012 (up +0.25% to 3.35%). It has now hit its lowest point since April 2020.

This was the largest weekly drop in Consumer Confidence following an RBA meeting since a drop of 6.6pts after the RBA increased interest rates by +0.5% in early June 2022.

Consumer confidence is now a large 25.1pts below the same week a year ago (February 7-13, 2022, 103.2). It is now also 6.8pts below the 2023 weekly average of 84.9.

Driving this week’s decline in consumer confidence was increasing concern about the performance of the Australian economy over the next year, a comparison of personal finances compared to a year ago, and whether now is a ‘good/bad time to buy’ major household items.

Consumer Confidence was down in all five mainland states this week, and under 80 in all of them except Western Australia.

Now 19% of Australians (down 3ppts) say their families are ‘better off’ financially than this time last year, compared to 49% (up 2ppts) that say their families are ‘worse off’ financially.

Looking forward, under a third of Australians (31% - down 2ppts) expect their family to be ‘better off’ financially this time next year, while just over a third (35% - up 1ppt) expect to be ‘worse off’.

Only 7% (down 2ppts) of Australians expect ‘good times’ for the Australian economy over the next twelve months, compared to 41% (up 8ppts) that expect ‘bad times’.

Regarding the Australian economy, 13% (up 1ppt) of Australians expecting ‘good times’ for the economy over the next five years, compared to 18% (unchanged) expecting ‘bad times’.

When it comes to buying intentions, 17% (down 6ppts) of Australians say now is a ‘good time to buy’ major household items, while over half (54% - up 5ppts) say now is a ‘bad time to buy’.

ANZ senior economist Adelaide Timbrell said the average confidence among people paying off their mortgages fell sharper (10pts) than other housing cohorts last week.

“Confidence among homeowners and renters also fell, by 5.2pts and 2.9pts respectively,” Timbrell said. “The subindex for whether ‘it is a good time’ to buy a major household item dropped to its lowest since April 2020.”

The lowest point in consumer confidence was recorded in March 2020 at 72.2, with ANZ and Roy Morgan calling it a 30-year low.

Luxury bags, shoes, clothing and jewellery are flying off the shelves at malls across the country even as rising interest rates hit consumer spending on more mundane items, with the mega Chadstone mall in Melbourne’s south-east the star performer.

Luxury retail sales for retail landlord Vicinity Centres soared by 55.8 per cent in the six months to the end of December to hit more than $1 billion annually for the country’s second-largest shopping centre owner and manager, which partly owns the Chadstone mall.

That helped underpin the revaluation of Chadstone to $3.25 billion, up 1.7 per cent. Vicinity owns the shopping centre along with private property billionaire John Gandel. The mall also has a luxury hotel managed by Accor, and is the new home to Officeworks’ head office.

Vicinity’s recently appointed chief executive Peter Huddle said the investment in the luxury segment at Chadstone, which now boasted more than 40 upmarket brands, by the landlord and its tenants had paid off, and there were plans to extend to the offerings.

He said that while there was evidence of a softening in the rate of sales growth across the 60 shopping centres the company managed and owned, he raised its earnings forecast to between 14 and 14.6 cents a unit for the full year, up from between 13 and 13.6 cents a unit previously. Vicinity’s shares closed 2 per cent higher at $2.05 on the news.

Chadstone’s success story aside, Vicinity reported a 73 per cent fall in statutory net profit overall to $176.3 million as it wrote down the value of its shopping centres in the consumer spending slowdown by $109.2 million. The more telling measure for real estate investment trust earnings, funds from operations, which excludes valuation volatility, rose 24.1 per cent to $357.1 million.

“Our growth in luxury is the result of our deliberate investment strategy to enhance our luxury landlord credentials,” Huddle said.

“Pleasingly, existing luxury brands are demanding more space to extend and elevate their product offerings, and we have a pipeline of potential new brands to bring to our premium centres in the short to medium term.”

In Sydney, Vicinity will look to add more luxury shops to its Chatswood Chase mall currently undergoing a $210 million expansion and refurbishment to cater for the demand for luxury brand items from upper North Shore shoppers.

Huddle called the spending on luxury “extraordinary”, adding that the sales growth in the sector since the lockdown period has been “exceptional”.

Many well-known brands such as Hermes, LVMH, Cartier and Chanel have invested in opening larger stores with more offerings from handbags to apparel and accessories.

“The brands have also increased the appeal of their offer to a much broader clientele, including a young clientele, and expanded into the male side of luxury,” Huddle said.

Ray White head of research Vanessa Rader said despite growing interest rates being expected to dampen spending, the S&P Global Luxury Index has recorded its greatest returns since April 2022.

Rader said it highlights the growing appetite for these luxury brands by consumers, both domestically and from overseas visitors.

“The growing emphasis on these establishments within our CBD brings a new level of quality and activity back to the city after a difficult few years and now represents 23.4 per cent of our street-fronted shops within our prime retail core,” she said.

Sequoia Asset Management’s Winston Sammut said Vicinity’s half-year result came in ahead of expectations as earnings benefited from better cash collections and the absence of lockdowns over the period.

Rent collections were strong, receiving 97 per cent of billings compared to 92 per cent in the corresponding period with speciality stores and mini majors, such as JB Hi-Fi, delivering sales growth of 21.7 per cent.

But Vicinity CEO Peter Huddle warned that “whilst guidance has been upgraded, the full-year result may be impacted by a fall in consumer confidence on the back of ongoing interest rate rises.”

Huddle said the factory outlet division had strong sales growth over the half and while capital cities had seen workers return to their CBDs, stores such as the QVB and The Strand in Sydney still had some lag in turnover.

“From a consumer demand perspective, the Australian retail sector continues to be a benefactor of an extremely tight employment market and robust household income growth and savings rates,” Huddle said.

“That said, we are mindful of the impact of rising interest rates and increased costs of living on Australian households in the near term, and we expect the rate of retail sales growth to moderate in the second half of the 2023 year.”

Vicinity reported an interim dividend of 5.75¢ payable on March 7.

David Jones will host a series of activations across its inner-city stores as part of World Pride 2023, including the launch of a new visual merchandising platform. 

The World Pride events will take place at Elizabeth Street and Bondi Junction locations from February 23 to March 5. 

Headlining the schedule is Briefs Factory, a diverse dance troupe who will perform across both locations as well as David Jones' Elizabeth Street windows. 

The performance will mark the launch of David Jones’ Our Window, Your Stage series, which will turn the windows of the Elizabeth Street and Bondi Junction stores into animated performance platforms.

David Jones Elizabeth Street store manager Wendy Rafferty said live model installations and DJs from the LGBTQIA+SB community will also run throughout the month. 

“For David Jones, Pride month is a time where we can reinforce our commitment to LGBTQIA+SB inclusion within our stores and beyond, celebrating acceptance and allyship, and championing authenticity.

“Through a series of unmissable events and in-store experiences, our community will be encouraged to imagine a world full of possibility, where individuality is celebrated and the voices of the LGBTQIA+SB community are heard.”

The Elizabeth Street store will feature a glitter rainbow booth at its entrance, while brands such as Calvin Klein, OPI, Dyson, Ralph Lauren, Marc Jacobs Fragrance, MAC and Bonds offer limited-edition goods, events, gifts with purchase and personalised products.

Visual merchandising assistant Craig Barrie will also join the schedule as alter ego 'Luna Laurent' (pictured). As a member of the LGBTQIA+SB community, Luna will make her editorial debut in the February issue of JONES Magazine, alongside many other members of the queer community.

“To me, Pride is about standing together, united and lifting each other up. It’s the perfect opportunity to unapologetically celebrate the queer community and all that we are, having conversations about our journey and where there is opportunity for further growth, support, and progression. To feel safe and supported as a queer in the workplace at David Jones has given me the ability to be exactly who I am, free of judgment - which is something I’m incredibly grateful for and why I am proud to work here,” Barrie said.  

David Jones stores around Australia will take part in the national Pride campaign, with rainbow store displays and team members given the option to wear a Pride badge.

David Jones has 43 department stores across Australia and New Zealand as well as an eCommerce site.

Baby Bunting has reported a 12.2% increase in in-store sales for the first half of FY23, now representing 80% of total sales.

The baby retailer, which stocks apparel from Bonds and Disney, saw eCommerce sales drop as a total of percentage of sales from 23.8% to 19.7%.

Touchless Click & Collect also fell in the first half by 30.2% compared to prior corresponding period, as consumers revert to pre-pandemic shopping behaviours.

However, it is still up by around 225% over a three year period.

Baby Bunting's pro forma net profit after tax was at $5.1 million, down 59% on the prior corresponding period (1H FY22), with total sales being 6.6% higher ($254.9 million) than prior period.

Baby Bunting CEO & MD Matt Spencer said its sales have grown by 36.7% over the last three years, noting that all Baby Bunting stores remained open during the pandemic.

“As life has normalised, the market share gains made through COVID have predominantly been held onto,” Spencer said.

“Post-COVID, our product segment performance is normalising. Nursery essentials – being a core category – continue to grow strongly and were up 12.7% in the half (over three years, this category is up 39.4%).

“Consumer staples, which are more widely available across general retail, saw a decline of 4.7%. Play time items (including Play gear) declined 3.6% in the half, reflecting price deflation and reduced demand after the pandemic.”

Meanwhile, Baby Bunting is driving investments into new markets, reporting a pro forma cost of doing business of 32.4% of total sales - an increase of 222 basis points on the prior corresponding period. It also cited significant wage inflation as contributing factor for the rising cost of doing business.

The company is preparing to launch its Baby Bunting Marketplace (to be available via its eCommerce site) in Q4 FY23, saying it presents a significant revenue opportunity. Baby Bunting said it is working with a number of suppliers to develop the offer, as it plans to launch the marketplace with 1,000 additional products.

The company also implemented a new advanced order management system and a time and attendance system, incurring a $2.2 million cost. Baby Bunting said that benefits are being realised from improvement in order management, and its ERP/POS replacement project is expected to move to vendor selection towards the end of FY23.

The company also added five new stores to its portfolio in the first half of FY23, including the expected launch of its second New Zealand store in Christchurch to open mid-2023. New Zealand is a relatively new market for the brand having only opened its first store there in mid-2022.

Consumer demand for cool sporting apparel, car maintenance products and wet weather gear have helped power Rebel and Supercheap Auto owner Super Retail Group to record sales in the six months to December.

The retailer, which runs a range of brands including sports goods brand Rebel, Macpac and Supercheap Auto, said its sales climbed 15 per cent to $1.96 billion in the six months to December. Profits were up by 38.1 per cent to $144.2 million.

Chief executive Anthony Heraghty said Rebel’s focus on partnering with popular global sporting brands had helped drive sales, while everyday essential spending on car products and strong demand for raincoats in this wet summer helped boost demand across Super Retail’s other major brands.

The group confirmed on Thursday that the sales momentum from the December half had continued into January.

Rebel’s performance fuelled the overall numbers, with year-on-year sales up 13 per cent to $682million for the half, and profits before tax up 23 per cent to $84 million.

Heraghty said the resurgence of organised sport after the pandemic is helping the brand, while the group’s new “RCX” (Rebel customer experience) store formats are offering a more interactive experience focused on more popular global sports brands in football and basketball.

“The key thing is what we’ve been able to do is partner with global brands to ensure the products we’re giving customers is, frankly, the cool stuff,” he said.

The company’s basketball goods sales were up 126 per cent compared with before the pandemic in 2019, and now make up 8 per cent of all sales. Rebel’s football goods segment has grown by 60 per cent since 2019 and now makes up 9 per cent of total sales.

“We’ve caught the zeitgeist in terms of the basketball trend,” Heraghty said.

The company was clear on Thursday that although it had posted a strong half of sales, it faces the same challenging macroeconomic conditions that the rest of the retail sector is grappling with.

Heraghty said that one positive for the company was that brands such as Supercheap Auto were more defensive because they focused on lower-cost essentials such as car maintenance, which consumers would not stop spending on in a slowdown.

“If my light bulb is broken on the brake light, I’ll get a new brake light,” he said.

Children’s sporting goods are also one of the last things a family will cut down on if things are tight – and even if shoppers are looking to scale down, this usually involves moving away from global brands towards more budget-friendly options.

“You might not buy the Lebron [branded sneaker], but you might buy two or three [price points] down,” Heraghty said.

Supercheap Auto sales were up by 18.3 per cent for the half to $728.6 billion, while BCF saw a 7 per cent change to $447.6 million.

Hiking and outdoor goods brand Macpac bounced back from the COVID years with sales growth of 54.8 per cent to $101.4 million. Heavy rainfall thanks to La Nina helped drive strong demand for raincoats and other wet weather gear.

The group declared an interim dividend of 34 cents per share, up from 27 cents this time last year.

Super Retail was hit with court action brought by the Fair Work Ombudsman last month over claims it engaged in serious breaches of the Fair Work Act through alleged underpayments which occurred between 2017 and 2019. 

The company told investors on Thursday that the case was still in its early stages, but it has increased its provision for what is potentially payable as a result of those proceedings by $8.8 million, bringing the total provision to $14.6 million.

Its shares were 4.3 per cent stronger to $12.48 in early afternoon trading.

Wesfarmers boss Rob Scott says the performance of struggling e-commerce marketplace Catch is unacceptable, but the retail giant is tipped to face an uphill battle to turn around the brand, which stands out as a sole blight on its balance sheet.

Industry analysts grilled the Wesfarmers executive team last week about how much pain they were prepared to put up with when it came to Catch, which has proven a headache since shortly after  Wesfarmers bought it for $230 million in 2019.

Wesfarmers confirmed last week that the gross transaction values on the Catch platform declined by 26.8 per cent in the six months to December, and the business posted a loss of $108 million for the half.

That included $33 million in restructuring costs as Wesfarmers embarked on redundancies and asset write-offs within the business, while moves were under way for a widespread reduction of costs.

Management blamed the poor results on a slowdown in e-commerce demand after COVID, which resulted in “surplus inventory and an unsustainable cost base” within the business.

Catch had invested heavily in inventory, fulfilment capacity and staff during the coronavirus-induced surge in online retail, but now spending conditions are slowing.

“We clearly over-invested,” Scott told analysts.

Stock watchers are running out of patience with the operation, with Wesfarmers’ initial investment in the company together with its cumulative losses now approaching $500 million.

“What can we as investors or market followers expect going forward – how much pain you prepared to put up with?” Bank of America’s David Errington asked Scott on Wednesday.

Scott said he believed earnings in the business would improve considerably in the second half of the 2023 financial year, but he agreed that Catch’s fortunes would have to turn around swiftly, or Wesfarmers would have to cut back on investing in the business.

“It’s not good enough, it’s unacceptable, we’re not satisfied with this at all. You can expect that we are taking very serious action to improve the financial performance,” he said.

“It’s going to be a disappointing year for Catch, but it will need to improve, it’ll need to improve materially in the years ahead, or we just simply won’t keep investing at the current level.”

Wesfarmers says its short-term goals include reducing overhead costs, which includes a reduction of its head count as well as running clearance activity to get rid of excess stock over the next few months.

The group will do this during a period in which pure-play online retail is slowing.

Online-only furniture retailer Temple & Webster was one example of an e-commerce business punished by investors last week, with shares plummeting 25 per cent after the company revealed a 46 per cent drop in half-year profits.

This could make the task of Catch’s turnaround all the more difficult, analysts fear.

“We believe the turnaround will be challenging given the very strong competition Catch faces from larger global marketplaces and omnichannel retailers, and the sharp shift in customers from online back to stores,” Citi analyst Adrian Lemme said in a note to clients.

Barrenjoey moved its price target from $49 to $48 after Wesfarmers’ results last week, pointing out that although the company delivered a strong first-half result, Catch’s growing losses were a lowlight.

“We lift our department stores and healthcare forecasts on better-than-expected results, which is more than offset by higher Catch losses (up from $50 million to $180 million), with Officeworks and [energy business] WESCEF lowered slightly,” consumer analyst Tom Kierath said.

Wesfarmers shares finished last week up by more than 3 per cent, after sharing more positive trading outlooks for discount department store Kmart and DIY giant Bunnings.

Catch has reported a loss of $108 million for the first half of the financial year, including restructuring costs of $33 million relating to inventory provisions, redundancies and asset write-offs. 

The Wesfarmers-owned online marketplace saw gross transaction value decline by 26.8 per cent during the period. 

Wesfarmers managing director Rob Scott said the result, for the half-year ended December 31 2022, was due to internal and external factors.  

“The disappointing financial performance in Catch reflected operational and execution challenges in addition to the broader decline in online retail demand during the period. 

“Catch’s earnings were impacted by significantly lower margin in the in-stock business due to increased clearance activity, as well as higher fulfilment and delivery costs associated with layout and process inefficiencies during commissioning of the new Moorebank fulfilment centre in New South Wales."

Catch has appointed a number of senior leaders in a turnaround strategy, including former Cotton On Group eCommerce head Brendan Sweeney in October 2022. 

"Restructuring activities to reduce overhead costs were commenced in December 2022 and additional commercial controls on range and inventory management have been implemented," Scott confirmed. 

Wesfarmers acquired Catch Group for $230 million in 2019.

JB Hi-Fi is the latest company to show that consumers are shrugging off the burden of higher interest rates on their home loans and spending up big on electronics and appliances over the past six months.

Bumper sales of laptops, gaming consoles and whitegoods during the Black Friday/Cyber Monday and Boxing Day promotions propelled the retailer to record sales and earnings in the December half.

JB Hi-Fi’s news comes a day after Super Retail posted a near 20 per cent December profit upgrade, with the owner of Supercheap, Rebel, BCF and Macpac telling The Australian Financial Review that shoppers are still spending, and retail is returning to normal with global supply chain kinks getting ironed out.

This week, Tyro Payments also revealed strong spending at retailers, pubs, restaurants and other hospitality venues that led to a strong first half and prompted the fintech to lift its profit guidance.

The early showing of half-year accounts came as the Westpac-Melbourne Institute index of consumer sentiment rose in January for a second month. Roy Morgan Business Confidence also improved in December, driven by a higher conviction about the performance of the Australian economy over the next year.

While consumers are battling higher costs for everyday items such as groceries and fuel, recently released strong retail sales and CPI data has raised the chance of another RBA rise in February.

JB Hi-Fi’s chief executive Terry Smart said trading conditions had started to normalise following two years of COVID-19 disruptions.

“Our relentless focus on providing the best value and high levels of customer service every day, both in store and online, continues to resonate with our customers,” he said.

JB Hi-Fi’s first-half sales gained 8.6 per cent to $5.3 billion in the six months to December 31 – topping analysts’ expectations.

Online sales in the December half reached $752.1 million, about 14.2 per cent of total sales in the first half. Same-store sales for JB Australia reached 8.5 per cent, while JB New Zealand bounced strongly to be up 16.1 per cent and The Good Guys brand same-store sales gained 7.3 per cent.

The rate of comparable sales growth across the business slowed from the first quarter to the second quarter.

Continued sales growth, combined with improved gross margins, resulted in strong earnings before interest and tax (EBIT) gain of 14 per cent to $479.2 million.

Net profit after tax for the December half is tipped to be up 14.6 per cent to $329.9 million compared with $287.9 million a year ago.

Mr Smart declined to add further outlook commentary when contacted, but last October flagged continuing pressure on household budgets, and noted the $5.1 billion retailer will be cycling some significant sales from last year driven by COVID-19. He was anticipating the second half of the financial year would be “a bit more challenging than the first half”.

Despite the positive news initially sending JB shares higher, they ended Tuesday down 42¢ to $46.68 each.

Milford Asset Management portfolio manager Roland Houghton said both JB and Super Retail updates, along with other industry feedback, suggests the consumer remained resilient despite the headwinds of higher prices and rate hikes.

He said this earnings season should be reasonably solid for the retailers, but it would be very company-specific, and companies that had managed inventory well and promoted effectively in the key sales periods of Black Friday, Cyber Monday and Boxing Day would be the top performers.

“Those which have brand strength will be critical. I think from a nominal perspective we should see reasonably good revenue numbers, but the real unknown is around the margins,” he said in an interview.

Mr Houghton warned there was still much more to wash though the system with inflationary pressures still persisting, and questioned whether consumption would be sustained as fixed-rate mortgages rolled over and in the face of rising living costs.

“We’re particularly cognisant of the hiking cycle that is still not over, and it’s still not yet in the daily P&L of the consumer because we haven’t had fixed rates come off, and even the December rate hike isn’t going to flow through to your mortgage until March,” he said.

Consensus upgrades

E&P Financial group analyst Phil Kimber said he expected consensus upgrades of about 15 per cent – broadly similar to JB’s share price increase since January 1.

Mr Kimber said that when JB releases half-year audited statutory results on February 13, the focus will be on earnings composition (in particular GP margins and sustainability) as well as trading in January and February.

He still kept his negative recommendation, believing calendar 2023 would be significantly tougher than last year given the rising cost of living and the reallocation of spending away from goods to services.

“We therefore expect material earnings declines (vs prior corresponding period) to commence in 2H23 and into FY24,” he said in a note.

Australia’s largest online book retailer Booktopia has cut up to 40 staff in its latest round of cost-saving measures, as it aims to shake off its recent history of leadership plot twists and financial losses.

The company said in an announcement on Monday, that it had implemented a number of cost-cutting measures as a response to changing consumer sentiment, greater online competition and inflation.

That includes an organisational restructure involving “30 to 40 redundancies,” or about 10 to 15 per cent of its employees, which the bookseller expects will save between $4 million and $5 million in annualised costs.

Booktopia chairman Peter George said the measure was part of a vision to position the company for challenging online retail conditions in the near term. “Letting some of our talented staff go as part of these cost-cutting initiatives is a disappointing but necessary step in these economic times,” he said.

A spokesperson for the company said the redundancies were largely in administrative roles rather than warehouse positions.

Shares in the company were up 32 per cent on the announcement, closing at 27.5 cents. Booktopia shares have shed hundreds of millions of dollars in value since listing on the ASX in December 2020 at $2.30.

An investigation by The Age and Sydney Morning Herald revealed that the group fell out of favour with investors during its first 18 months on the ASX amid concerns about its leadership.

Struggling to meet its earnings forecasts after a period of strong pandemic-inspired growth, the bookseller quietly began laying off staff last year.

Nash effectively returned to the helm of the company last September as executive director, after calling for a shareholder meeting in August, with a plan to use his family and friends’ 30-per-cent-plus stake to overhaul the board.

The company’s four remaining directors resigned, leaving Booktopia searching for replacements. In December, Peter George, well known for his execution of corporate turnarounds, was appointed chairman and non-executive director. George has been involved in several prominent turnarounds including those for Nylex and, more recently, Retail Food Group.

Other cost-cutting initiatives announced on Monday included an increase in postage and handling costs for consumers, price adjustments on various products to reflect increasing costs and a reduction in the company’s lease obligations.

The initiatives are expected to deliver $12 to $15 million of improvements to the company’s earnings in FY24 and beyond.

Kogan.com Limited has reported an inventory reduction in-warehouse of 39% since June 30, 2022, buoyed by unprecedented discounting that has impacted gross profit and gross margin.

Inventory has been reduced to $98.3 million (comprising $84.1 million in-warehouse and $14.2 million in transit) as at December 31, 2022, from $159.9 million (comprising $137.9 million in-warehouse, and $22.0 million in transit) as at June 30, 2022.

The reduction in inventory did result in reduced operating costs across both warehousing and marketing, and supported a growth in net cash (after loans and borrowing) to $74 million - after having funded the Mighty Ape Tranche 3 payment ($14.2 million), repaid loans and borrowings of $25 million and successfully acquired online homeware brand Brosa. 

Having now cleared through the bulk of this excess inventory, Kogan said it will continue optimising operating costs and streamlining the business to return to the levels of operating margins previously delivered prior to the COVID-19 pandemic. 

The Company expects gross margins to improve from January 2023, and to further optimise operating costs progressively through the second half of the financial year. 

Meanwhile, the half saw Kogan First subscribers grow to 404,512 by December 31, 2022 (47.6% growth year-on-year) and Kogan Mobile Australia reach the most ever Active Customers in its history (4.2% growth year-on-year). 

However, Kogan reported that the reflected subdued sales activity for the Company, whilst cycling a half in the prior year that was impacted by COVID-19 lockdown orders. 

Kogan.com founder and CEO Ruslan Kogan said the impacts of inflation and interest rates have begun to affect the lives of Australians and New Zealanders. 

“We’ve been growing Kogan.com for more than 16 years now, so we’ve been through many cycles, and we know that when customers are watching their costs carefully, eCommerce becomes even more important,” Kogan said.

“Since Kogan.com launched out of a garage in 2006, we’ve been obsessed with making the most in-demand products and services more affordable. We are proud to be making that possible for our millions of customers and the growing base of loyal Kogan First Subscribers. 

For the half, Kogan.com reported a gross sales amount of $471.1 million, down 32.5% year-on-year, said to be impacted by soft trading condition. It achieved a gross profit of $62.9 million.

Variable costs as a percentage of gross sales reduced to 7.6% in the first half of FY23 from 8.5% in the prior corresponding period.

Discount retail chain The Reject Shop has lost its chief executive after just six months in the job as its sales recovered from last year’s COVID slump.

In an announcement to the ASX on Wednesday, the company said Phil Bishop had resigned for personal reasons, and that the search for his replacement would commence immediately. He will leave with six months’ pay and statutory entitlements.

“On behalf of the board and The Reject Shop team, we thank Phil for his work over the past six months and wish him well,” the retailer’s chairman Steven Fisher said.

Shares in the company slipped 2.4 per cent to $4 about midday.

Bishop served as chief operating officer at Officeworks before joining The Reject Shop in July. His predecessor Andre Reich had resigned from the top job to pursue other opportunities in April.

The company’s Chief Financial Officer, Clinton Cahn, will be acting chief executive, having performed the role in the transition period between Reich and Bishop last year. He’ll also remain finance chief during the search for a new CEO.

The Reject Shop, which has 377 stores across Australia, flailed in the first half of last year, as shoppers stayed at home due to the Omicron variant of COVID-19.

But business improved over the past months, with the company flagging a 3.5 per cent rise in sales to $439.7 million for the latest half, and operating earnings between $22.5 million and $23.5 million, up from $20.5 million in the December half of 2021.

With shoppers having returned to shopping centres and stores, the “positive momentum” has continued during the first four weeks of the year, the company said. The Reject Shop will report its half-year results on February 23.

The news of Reject’s CEO departure comes as discount retailer Best & Less is also searching for a new chief executive after its boss Rodney Orrock stepped down on Wednesday for health reasons. He will leave the company at the end of his medical leave in late February.

“While Rod continues to make good progress in his treatment and recovery from lymphoma, he has decided to step down to prioritise his long-term health,” the company said in an announcement to the ASX.

Best & Less said an external search process for a permanent chief executive was underway, with Jason Murray remaining as executive chair in the interim.

A consumer spending slowdown is setting the scene for a fierce battle on price in the department store sector after a strong start to 2023 by Myer and David Jones.

Analysts warn that while the iconic big two department stores are heading into this year with strong foundations, their discount peers – chains such as Kmart and Big W – may be better placed to capture budget-conscious shoppers as households “trade down” purchases over the next three months.

Australian Bureau of Statistics retail figures for December 2022 showed department store sales took the biggest month-on-month hit of any category, down 14.3 per cent compared with November.

However, recent trading updates from Myer show the company’s sales were up by close to 25 per cent in the first five months to December, while David Jones’ turnover was up 31 per cent.

Morningstar analyst Johannes Faul said the ABS figures needed to be viewed in context of the incredibly strong November for the sector as shoppers flocked to the Black Friday sales.

“It was a decline in December, but on an amazing November,” he said. “Year-on-year, department store sales are up.” The sector generated $1.7 billion in December 2022 – up from $1.5 billion in 2021.

Despite a COVID rebound, overall retail sales growth is slowing, and Faul said he expected shoppers to “dial back” discretionary purchases over the next six months.

That trend could spell trouble for department stores such as Myer and DJs, which sit in the middle of the market, said co-director of RetailOasis, Trent Rigby.

He said as consumer confidence fell and spending slowed, speciality retailers such as The Reject Shop and discount department stores such as Kmart tended to benefit while mid-market operators found it tough to maintain momentum.

“Expecting consumer confidence and spending to continue to trend the way they are for the rest of 2023, then big players within that middle market [like] Myer, Target and DJs will be the worst impacted.”

Director of valuations at global advisory firm Gordon Brothers Brendan Smyth agrees that discount players could see an advantage when shoppers “trade down” discretionary purchases as they search for the lowest price.

“There is going to be more consumers being more conscious about where their dollars are being spent and how they’re spending,” he said.

“Maybe it’s a bit more affordable to go to Myer than it is to DJs, it’s a bit more affordable to go to Kmart than it is to Myer, maybe Big W is even more affordable than Kmart is.”

But Smyth says the discount end of the market will also have its own challenges this year even if they pick up more customers as higher supply chain costs eat into margins.

“Where it’s going to be hard for those discount players is that they sell a lower-margin product, but they need to make margins themselves.”

Kmart and Big W are yet to release trading updates for the past few months, though Big W’s owner, Woolworths, confirmed last November that the store had a 30 per cent jump in sales in the three months to September.

Myer investor Wilson Asset Management is upbeat about the department store’s position going into a slowdown, with portfolio manager Oscar Oberg saying the company’s turnaround plan is on track.

“Over the next six to12 months we will start to see more inbound tourism and more people coming into the city which will be very positive for Myer’s CBD stores. There’s a long way to go [in terms of growth] here and we think the business can generate profit over $100 million per annum very soon.” Oberg said.

Rigby says his team is viewing a bounce-back in the department store model as somewhat temporary, however, warning that the broader challenges facing the entire sector have not gone anywhere.

“The biggest challenge for department stores will be how they attract and maintain a younger digital consumer,” he said.

Smyth believes it will be the brands that match their offers best to budget-savvy shoppers that will have the edge this year.

“Pricing, relevance to the customer and customer experience are all going to be the key things,” he said.

Grill’d founder Simon Crowe is confident the premium burger chain will scoop up price-conscious customers who choose to trade down from more expensive restaurants as they tighten their spending.

Crowe said Grill’d was an “aspirational and premium” brand but also affordable for diners seeking to reduce their discretionary spending as they adjust to rising interest rates and high inflation.

“We obviously don’t want for people to be doing it tougher out there, but in an economic environment that becomes challenging, Grill’d is actually better placed than anybody,” Crowe told this masthead.

He pointed to the global financial crisis, during which he said the burger chain saw a “significant uplift in volumes”.

“We see people who decide to tighten their belts a little migrate from premium casual dining to fresh or fast casual dining, exactly where our brand sits ... We gain a net influx of guests coming to us from above because they still want quality and service, but they want more affordability, and we provide all of those.”

Grill’d’s range starts at $12.50 and increases to $16.90 for a single burger. A ‘snack’-sized side of chips and a 600ml Pepsi Max would bring the meal to $21.90 for the cheapest burger.

The burger chain was among several foodservice brands that raised their prices last year amid mounting supply chain pressure and rising ingredient costs, but Crowe said he was not expecting to pass through any further price increases to customers in 2023.

“A lot of the pricing pressure in the supply chain have already been brought to the fore, and I don’t expect there to be significant pressure going forward.”

Crowe also owns premium chocolate brand Koko Black, which he said had just seen off the “strongest Christmas we’ve ever had”. Like Grill’d, the business owner is similarly unconcerned that cost-of-living pressures will stop Australians reaching for sweet treats.

“The macro environment or economic challenges won’t be disruptive to those businesses that are focused on long-term brand building and product quality,” he said.

Grill’d last week launched its Gamechanger burger patty made from black angus cattle that produce 67 per cent less methane, a sustainability-driven initiative that Crowe said took lessons learned from the short-lived conversion of two high-performing stores into plant-based-only restaurants. Grill’d Surry Hills and Collingwood were temporary renamed ‘Impossibly Grill’d’ and served a full plant-based menu for just 21 days before fierce customer pushback reinstated the original menus.

The Gamechanger patty was a partnership with Sea Forest, a Tasmanian producer of asparagopsis, an edible red seaweed that, when fed to cattle, results in the animals producing less methane. Customers pay $1 to swap their patty, which is offered at 61 Grill’d stores in a national network of 160.

The initiative has cost the burger chain $2 million. The take-up of the new patty has outstripped demand so far, said Crowe, who was looking to prove that demand existed for more sustainable options.

“We know that the dollar is at least what it will cost us. We’re trying not to put more costs in because we want to make the hurdle for consumers to jump as low as possible,” he said.

“The step change for us is enormous and we’re happy to do it. But yes, it needs to be the demand remains high.”

Despite inflationary pressures and rising living costs, retail spending increased 1.7 per cent in December, according to the Mastercard SpendingPulse report, released by the Australian Retailers Association.

Consumers spending on apparel rose by 6.7 per cent, on groceries by 6.6 per cent, lodging 4.1 per cent, electronics 3.5 per cent, jewellery 2 per cent, and at restaurants by 1.8 per cent last month.

Year-on-year sales were down for fuel and convenience at 4.1 per cent and home furnishings at 2.4 per cent.

ARA CEO Paul Zahra welcomed the figures and said achieving spending growth in December was “encouraging” for retailers.

“These December results are a testament to the resilience of the retail industry and set a good foundation as we anticipate a period of uncertainty this year with inflationary pressures and the rising cost of living,” he said.

Although Zahra flagged inflation as a factor in the increased sales, he forecast a “challenging environment” for businesses as rising operating costs will tighten margins moving forward.