Sky News host Caleb Bond says that luxury retail sales in Australia, which have nearly doubled to $5.3 billion in the past ten years, could offer alternative strategies to curb inflation besides raising interest rates.
Bond highlighted that the contribution of the luxury retail sector to Australia’s GDP is growing at a faster pace than the overall economy, with the luxury market forecast to reach $6.1 billion by 2027/28.
The medicinal cannabis sector has taken a buffeting, but Gina Rinehart-backed LGP hopes a new facility in Denmark will help it ride out the turbulence.
Odense, Denmark | It only takes about 15 minutes to drive from the centre of Odense, a Danish university town, into the farmland that skirts it. But it’s enough time, as always, to strike up conversation with a taxi driver.
He learns I’m an Aussie, and isn’t surprised. “I’ve driven Australians out here before,” he says.
“Here” is a large collection of greenhouses overlooked by a compact, functional office building and a couple of bungalows that pre-date the site’s industrial development.
Unbeknownst to this cabbie, the greenhouses are teeming not with tomatoes or strawberries, but the tall, fragrant flowers of cannabis.
Only the sign at the gate gives away that we have arrived at the perhaps unlikely European outpost of Perth-based, ASX-listed medicinal cannabis company Little Green Pharma.
For LGP’s spirited founder and chief executive Fleta Solomon, who was visiting the site this month with her board, this facility is at the centre of her ambition to nurture her seven-year-old start-up into a European market leader.
“Europe will be the biggest medicinal cannabis market outside of North America, but it’s still in its infancy, it’s still emerging. We just wanted to be here,” she says.
The company has quietly been making inroads into Europe from its base in Perth, where its production facility churns out flowers and oils that are already EU-compliant.
LGP has several deals with distributors in Germany, one of the world’s largest consumers of medicinal cannabis. In France, the company is the key supplier to an official clinical trial, taking a loss in the hope of reaping a first-mover advantage if the trials pave the way to legalisation.
In Italy, LGP has won a government tender to fill shortfalls in the government’s own production. It is also targeting Britain, Poland, Portugal and Sweden.
But two years ago, the sheer volume of demand from Germany was already beginning to tax the capacity of the company’s Perth facility. Solomon and her team were weighing up a potentially slow and costly project to expand the plant Down Under, when they got a tip-off that Canada’s Canopy Growth Corporation was looking to shutter its operation in Odense.
“They had different procedures, a different purpose. For us, we knew that we could streamline that operation and make it efficient, and then we’d have a facility in the market that is going to be the future,” Solomon says.
LGP snaffled the facility for $20 million – a fraction of the $100 million-plus that the previous owner may have invested into it, and less than the value of the land and assets.
“If we’d had to build this facility ourselves we probably wouldn’t have done it, we wouldn’t have built it so large. But the fact is that we got it so cheap,” Solomon says.
The headcount was slimmed down from more than 100 to about 40. The silos in the business were broken down to ensure that the diverse elements of researching, growing and processing cannabis were more closely connected.
The challenge of cannabis is that manufacturers are trying to produce a uniform medicine from an inherently non-uniform input: a living plant. This puts a premium on concentrating your production in fewer sites, and on finding and propagating the ideal genetic stock.
“We hired an R&D specialist, a plant geneticist who was able to go phenotyping or pheno-hunting and get the right cultivars for us and import them,” Solomon says.
“It’s actually easier to import seeds and cuttings into Denmark than it is into Australia. So, this became our hub for the genetics, and it’s such a big facility that we have got enough space to store them.
“That’s the beauty of this place: we’ve got all of these genetics ready to go, and it’s preparing for the European market when that opens.”
LGP’s Australian operation will ultimately focus on higher-cost, higher-price boutique flowers, with an output of about three tonnes of raw biomass a year. In Denmark, Solomon says, output could be up to 30 tonnes a year.
Her optimism doesn’t seem to have rubbed off on investors. At 17¢, LGP’s share price is at its lowest since listing at 45¢ in February 2020. It peaked at 94¢ in early 2021, and has lost almost half its value in just the past year.
Sentiment has turned against the sector as a whole. The industry has been a bit like tech: full of hype, hope and surging values but short on actual cash flow and profits. Rising interest rates, surging costs and slowing economies have forced a reality check.
Solomon hopes she can insulate her company from the biggest speculative swings. She says LGP is “approaching cash flow break-even”, and has benefited from its larger shareholders – who include mining magnate Gina Rinehart – being “supportive, loyal and really involved”.
The downturn has increased her focus on cost control and trying to turn a profit. The coming shake-out of the sector could throw up acquisition opportunities, but she says she’ll resist the temptation unless there is something that “fits into our growth strategy, and is the right deal at the right price”.
“Our priority is to get to profitability. And if that means you have to forgo certain activities within the supply chain, then we just need to be really sensible,” she says.
Solomon projects bullishness about her company’s prospects for Europe-led growth, but an almost anxious caution her bottom line. All up, though, you’d have to say she’s aiming, well, high.
But Brandbank decided - after careful consideration - that it was going to end the agreement with the UK-based brand and reimagine the existing assets into a new vertical brand called ‘Unison’ - owned and operated in Australia.
As part of the rebrand, Brandbank will transition the same core team of 25 people who looked after French Connection Australia - across design, human resources and operations - and will refit its 11 standalone stores, 48 David Jones concessions and 57 Myer concessions into Unison. The website will also be updated to suit the new brand name.
Brandbank CEO Peter Halkett, who just joined the company two weeks ago, told Ragtrader that this large-scale brand launch was both timely and desired.
“[Brandbank] wanted to have something much more specific for the Australian market,” Halkett says. “Much more flexibility… So an Australian-focused brand with attributes that appeal to the Australian customer, and to really design a range that has all the products that we had in French Connection, but also has some more fashion products and slightly more premium.
“By reviewing and deciding to relaunch a new brand basically allowed the business to position it precisely and exactly how it wanted to rather than necessarily operate within the restrictions under a license agreement.”
French Connection first launched in Australia in 1998 through Brandbank, with Halkett saying the agreement originally involved shipping over all the product from the UK. Over time, Brandbank began overseeing and controlling the manufacturing and designing process in Australia
“In simple terms, controlling all facets of the brand from the manufacturer through to how it's presented at point of sale, flexibility is what it's all about now,” he says. “Distributing and licensing is quite different from being vertical. Brandbank made a very good decision by establishing its own brand now.
“It's been a successful business, but there are times when you've got to make a decision whether you want to continue. Because remember, when you have a license, a lot of the value of that business can be in the brand itself. We don't own brands. So when we have our own brand, we're creating more value by having that as our own brand name.”
As part of the transition, Unison will utilise the same sourcing channels that Brandbank uses for its other fashion brands, including Seed and Commonry. It will also continue producing many of the core product lines that were successful with French Connection Australia, while adding on new product styles.
“This is not like establishing a brand new business where we're starting with a blank piece of paper; we know what our customers like,” Halkett says. “When they go to the stores, and when they go to David Jones and Myer to our pads, our job is to set out exactly what Unison does compared to French Connection.
“We're hoping a lot of French Connection customers will like what we're doing with Unison, and, in many ways, we'll be designing many of exactly the same products with the same fabrics in the same fit and same style.”
Halkett says there will be no immediate changes to price points, with current lines averaging between $50 to $350, nor any major changes to its production output. French Connection Australia sold a core range with seasonal core and monthly drops. All of its styles will be designed in Australia, with manufacturing centred in Asia.
“What we're starting with is what we have today,” Halkett says. “There is definitely a lot of space for a lot more concept stores, because we only have a limited amount - compared to over 100 Seed stores, for example.
“In the future, once we transition customers, and we're satisfied that that's going well, we believe we can probably expand the size of the pads in time as we grow the range and as the brand gets more and more traction. Beyond that, I'm a New Zealander, so we'll have New Zealand in our sights at some point in time as well.”
Halket says when the brand does venture into New Zealand, it will likely open more owned stores than department store concessions.
Speaking on the entire Unison venture, Halkett says it will be the first large-scale launch of a new brand in Australia.
“It's a very unique situation,” Halkett says. “It's not for the faint-hearted. But one thing I appreciate about this business is they take a long-term view in their decision-making. This is definitely the right long-term decision.
“For me to join a new company and to immediately have such a significant brand launch is very exciting.”
BB Retail Capital (BBRC) has issued a compulsory acquisition notice in relation to its takeover bid for discount fashion retail brand Best & Less Group (BLG).
In an ASX announcement, BBRC advised BLG shareholders to accept the takeover offer at $1.89 per share and has extended the offer acceptance period until July 14.
“The bidder has advised that the compulsory acquisition will be on the same terms as the offer, including the offer price of $1.89 per BLG Share.”
In an effort to encourage a fast uptake, BBRC has told BLG shareholders that if they accept the offer now, they will be paid within seven days of their acceptance, but if they wait for the compulsory acquisition process, payment will be in at least six weeks’ time.
Meanwhile, BLG’s independent directors – Stephen Heath, Melinda Snowden and Colleen Callander – have all resigned.
BLG’s board has appointed Tim Dodd as a non-executive director of BLG with immediate effect. He is the global CFO of BBRC business across investments and operations.
Borrowers are gloomier than they have been since the global financial crisis and economists warn the pain will get even worse for households and retailers if interest rates keep rising as expected.
The Reserve Bank of Australia’s decision last week to keep the cash rate on hold at 4.1 per cent appears not to have improved the mood, with consumer sentiment falling 0.8 points over the past week, according to the latest ANZ-Roy Morgan survey, released on Tuesday.
The decline was driven by a deterioration in sentiment among people paying off their homes, which fell to its lowest level since the survey began in 2008.
The figures are the latest sign that households are feeling the heat from the most rapid interest rate tightening cycle in a generation as the RBA battles the most acute inflation outbreak in decades. The RBA has lifted its benchmark cash rate at 12 of its past 14 meetings.
Market pricing implies a 54 per cent chance the RBA will increase the cash rate to 4.35 per cent at its August 1 meeting, and puts the probability of an increase by September at 86 per cent.
The proportion of consumers who said now was a good time to buy a major household item was mired around the record low levels witnessed at the start of the COVID-19 pandemic, according to the survey.
The collapse in sentiment has translated to lower discretionary spending. Retail trade volumes declined in both the December and March quarters – the first back-to-back fall since 2011 – as consumers cut back on non-essential purchases such as appliances, clothes and electronics.
Spending on discretionary items fell by 0.6 per cent over the past 12 months, driven by a 4.8 per cent fall for furnishings and a 3.4 per cent drop for clothing, data released on Tuesday by the Australian Bureau of Statistics shows.
Non-discretionary spending, by contrast, increased by 6.9 per cent over the past year.
Commonwealth Bank economist Harry Ottley said consumers were trimming spending on items such as travel and entertainment, but spending more on childcare.
“We expect these trends to continue and for the consumer to further curtail spending over coming months as the fixed rate mortgage reset hits its peak,” Mr Ottley said.
Australians are spending on average almost $600 less online than they were a year ago, Airwallex’s digital economy index shows.
The data, released on Tuesday, is based on a representative sample of 1000 of the Australian fintech’s customers.
Airwallex director of strategy Amelia Hamer said Australians were easing up on non-essential spending.
“As interest rates have climbed and cost-of-living pressures have increased, it’s no surprise Australians are being more selective about where they spend online,” Ms Hamer said.
Sentiment among retailers has fallen sharply as a result of fewer sales, with the NAB business survey for June revealing conditions weakened further in the sector last month.
Confidence among retail businesses was weaker than any other industry, declining nine index points, according to data released on Tuesday.
Other consumer-exposed industries including wholesale trade and personal services also experienced falling confidence, meaning there were more pessimists than optimists.
JP Morgan economist Jack Stinson said the NAB survey indicated a near-term increase in the jobless rate was likely, after surveyed capacity utilisation fell to 83.5 per cent, its lowest level since April 2022.
“Capacity utilisation is a fairly good leading indicator of the unemployment rate, and the current level is consistent with a three-month ahead unemployment rate above 4 per cent,” Mr Stinson said.
“The metric has now declined in each month since January and like other leading indicators ... points to an increase in the jobless rate over the second half of the year.”
Consumers are also pessimistic about the outlook for jobs. The Westpac-Melbourne Institute sentiment survey, also released on Tuesday, showed household unemployment expectations up 32 per cent since the RBA started lifting interest rates in May 2022.
NAB head of market economics Tapas Strickland said the unemployment expectations index had correlated highly with the unemployment rate.
“Overall, that suggests a rising probability the unemployment rate could rise, though other signals such as job vacancies still suggest a tight labour market,” Mr Strickland said.
Australian consumer electronics giant JB Hi-Fi announced a major expansion of its New Zealand operations last week, unveiling plans to double its store count in the next three to five years.
Managing director of JB Hi-Fi New Zealand Tim Edwards told Inside Retail that he plans to grow the business from 14 stores to 38 in the next few years, and has identified a total of 60 locations that could work as bricks-and-mortar sites.
Whether JB Hi-Fi expands into all of these locations will depend on the success of Edwards’ five-year strategy for the business, which he has been honing since joining JB Hi-Fi New Zealand 12 months ago.
Based on his 14 years’ experience in New Zealand retail, including at Noel Leeming and The Warehouse Group, Edwards sees a massive opportunity for JB Hi-Fi to expand physically and digitally in the coming years. He revealed that JB Hi-Fi also plans to move its e-commerce site to the Shopify platform in the future.
“I’ve seen a lot of the nooks and crannies of the New Zealand market, and one of the things I always noticed [from the outside] was that JB Hi-Fi was underperforming on its potential,” Edwards told Inside Retail.
“That always worried me as a competitor, but I joined the business just over a year ago and [now get to] help to realise that potential.”
That underperformance isn’t a reflection on the team, Edwards said, but rather, the lack of a clear strategy on how to take JB Hi-Fi New Zealand to the next level. This is something the business now has, and the team has rallied behind it.
According to Edwards, the New Zealand business had been in a state of “hibernation” for the last five to seven years, as its Australian owner, JB Hi-Fi Group, tried to work out what to do with it.
The group eventually decided to “double down” on the New Zealand market, and invest in building it up as the broader retail market recovered. Edwards was brought on in 2022 after the former New Zealand MD Cherie Kerrison exited the business, and he immediately started working on the next phase of JB’s local growth.
According to Edwards, the New Zealand market could potentially handle double or triple the size of JB Hi-Fi’s current store network, but he is working hard to make sure that each store location is right. For reference, JB Hi-Fi currently has 14 stores across New Zealand, whereas Noel Leeming has closer to 90.
“We use multiple triangulations [to make those decisions], such as population density, and income per household, etcetera, but we also use a lot of gut and experience,” Edwards explained.
“We see a clear line to 38 stores, but the key is to make sure that we resist the temptation to just put stores wherever, whenever the sites become available. We want them in the right size, in the right location, and to complement what we’ve already got.”
Part of the expansion involves relocating at least two stores to more desirable locations. JB’s Hamilton store on New Zealand’s North Island, for example, has been relocated from the CBD to a shopping centre. It drew 15,000 customers through its doors on opening weekend.
“This calendar year we’ll be launching on Moorhouse Avenue in Christchurch. It’s New Zealand’s second largest city, and we’ve only got one store there — that catchment can handle three, four, or five stores over time,” Edwards explained.
“Next after that will be Invercargill, at the very bottom of the South Island, which is a very high socio-economic growth area. And then the other two stores we’ll be launching before Christmas [2023] are in Christchurch and Auckland International Airport.”
As it stands, JB isn’t the biggest consumer electronics business in New Zealand, but one of its advantages is that it caters to multiple types of customers.
Edwards noted that while JB’s consumer electronics customers – those coming in for televisions, monitors, laptops, and phones – shop on average 3.5 times a year, the retailer also caters to media customers, who shop for music, movies and video games around once a month.
Having a higher volume of customers – around 100,000 people a week – enables JB Hi-Fi to capture more spend than its competitors.
There are inherent difficulties in trading in New Zealand, however. The country is split across two major islands (although the country is technically made up of more than six hundred islands), and has just a few large cities, surrounded by smaller towns and rural areas.
This can make getting stock into stores difficult. Getting it to customers can be even harder.
“We’re at the end of the world here, so we’ve got to get stock here, and then get it to the right island, and then get it to the customer,” Edwards explained.
“On the surface you think, ‘how the hell are you going to do it’, and it’s not without its challenges, but there’s a pretty tight infrastructure behind it, and our customers know that if they’re in a remote South or North Island town, they’re going to have to wait another day.”
Itaoui is the former owner of Sanity alongside its founder Brett Blundy, with both owning capital market firm BBRC.
Consequently, the recently proposed CEO appointment of Erica Berchtold, who currently leads The Iconic, will no longer go ahead. Berchtold was expected to start as CEO of BLG on September 4.
Itaoui has operated and invested in Australian and global retail businesses for over 20 years, 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.
“I am excited to lead BLG and committed to taking the decisive action necessary to position the company for the current challenging trading conditions,” Itaoui said.
“I believe strongly in BLG’s potential to extend our leadership position in the value segment, leveraging our unique offer, privileged relationship with our customers, and the capability of BBRC.”
Itaoui was initially appointed as interim CEO of the company after it passed the main hurdle of BBRC's takeover process. The now former BLG directors associated with Bignor and Allegro - now former majority shareholders - resigned from their positions, with Jason Murray resigning from his position as Executive Chair.
BBRC now holds a voting power of approximately 71.54% in the company as of June 21, with existing minority shareholders still able to sell off their shares until June 30 next week.
In a recent update, BLG downgraded its net profit expectations to $3.6-$4.2 million, significantly down from its $18-20 million prediction earlier this year. .
Chair of the BLG Independent Board Committee Stephen Heath told shareholders that this decrease in net profit will have an adverse impact on the quantum of any final dividend for FY23.
“In light of the deterioration in BLG’s trading performance, as well as the likely reduced trading liquidity of BLG shares given the Bidder's increased Voting Power as a result of acceptances received under the Offer, the BLG Independent Board Committee (comprising of Stephen Heath, Melinda Snowden and Colleen Callander) (IBC) believes that the BLG share price may fall materially following the close of the Offer.
“Accordingly, the IBC recommends that those shareholders who have a shorter-term horizon for their investment in BLG or who have concerns about their future ability to exit their holdings should 'accept now'.
“Shareholders who have a longer-term investment horizon and are comfortable in remaining a minority shareholder in BLG may consider ‘taking no action’.”
IBC encouraged existing shareholders to read the risks of remaining a minority shareholder outlined in BLG’s Original Target’s Statement last month.
In a statement released today (June 22), BLG said if BBRC’s voting power exceeds 75% of total shares on issue, “it may be able to delist the company from ASX following the fulfilment of certain requirements set by the ASX.”
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.
When the post-Mother’s Day consumer spending slump hit large areas of the retail community, the initial reaction from many retailers was that surely this was an aberration.
Sadly, my task today is to follow up my May 31 alert of the downturn with a further alert that not only has the post Mother’s Day downturn become entrenched, but the downward sales slope has got steeper.
Discretionary retailers are looking at a slump in sales of well over 10 per cent and sometimes reaching the high teens.
As I will describe below, we are also looking at a potential fundamental change in the attitude of Australians to the economic conditions in which they live.
This change in economy will test the increasing view of younger staff members that lifestyle is more important than financial success obtained from longer working hours, which drove their parents and grandparents.
Many listed retailers are now alerting shareholders to the seriousness of the dip.
While a similar fall took place in the early weeks of the pandemic in 2020, sales then recovered quickly and a three-year boom replaced initial despondency.
But this time there is no boom on the horizon and many retailers are starting the financial year overstocked and overstaffed.
To make matters worse, the government’s inflation boosting policies mean the cost of doing business continues to escalate rapidly because inflation is entrenched in areas like energy, labour and in many cases rent.
It’s a perfect storm for those retail sectors that depend on discretionary spending. And for food retailers, consumers are switching to lower cost and lower margin products at an unprecedented rate.
As I discussed on Wednesday, if the government had applied the economic brakes to help the Reserve Bank control inflation, we would now not expect further interest rate rises and be looking forward to a rate fall.
Instead, as I pointed out, governments (including states) stimulated and moved to lower productivity, so the central bank is confronted with low unemployment and entrenched inflation and is under pressure to keep increasing interest rates, thus compounding the sales falls and community misery.
Remember that the misery is being applied to only some two thirds of the population — those with sizeable mortgages and who are renting.
I am not calling an Australian recession because the overall economy is boosted by minerals and agriculture, plus the spending of those whose finances make them immune from the misery.
But for the two thirds of the population in the eye of the storm it will be a severe recession and fear of what is ahead is now changing the attitude of Australians to the national outlook.
The ANZ-Roy Morgan Consumer Confidence index has now spent 16 straight weeks below the mark of 80, the longest stretch at that level since the index began on a weekly basis in 2008.
But ANZ senior economist Adelaide Timbrell believes that hidden in those figures is a more fundamental change in the Australian community. I have reached similar conclusions based on the experience of retailers.
Timbrell points out that confidence about “current financial conditions” has slumped 10.6 points in the past four weeks.
Last week was the third consecutive week with ‘future financial conditions’ below 90, the longest it has been this low on record.
It’s that four-week slump in “current financial conditions” outlook that has been translated into consumer spending.
And it will get worse because the attack on contract labour by the current government is also an attack on those with a second income to pay their mortgages.
Watch out banks.
When companies set their budgets for 2023-24 around March, sales were a little soft but holding well, and so there was no panic.
Boards and chief executives over a wide area now suddenly find their budgets, plus the incentives that go with them, are totally wrong. This can create a sense of hopelessness among staff.
A whole new set of realistic financial forecasts need to be established along with very different strategies to cope with the new environment.
For most CEOs this will be the first time they have had to rewrite budgets and not all will be good at the sudden implementation of new strategies.
And while debate rages on the contracting front what should have been a nation uplifting referendum on recognising the role of Aboriginal and Torres Strait Islanders in our history, the referendum has been hijacked by the wording of the proposed constitutional measures. Many leaders of the indigenous communities believe a “Yes” vote will be result in a dramatic shift in power away from non-indigenous people.
The debate will be ferocious and just what the nation did not need at this time.
Strong spending on cafe, restaurant and takeaway food is driving retail turnover growth, but food inflation and rising prices overall are clouding the figures.
Retail spending data from the Australian Bureau of Statistics released on Thursday showed a 0.7 per cent jump in turnover in May across as shoppers looked for bargains at mid-year sales.
Spending on food and eating out also helped lift May’s numbers, with cafes, restaurants and takeaway food services up 1.4 per cent to hit a record level of $5.4 billion for the month.
Industry experts were cautious about the numbers, however, observing that inflationary pressures and price increases were having an impact on monthly turnover figures for food and dining.
“It’s an essential item, we all have to eat... but there is no doubt that unavoidable price increases are having a part to play in that sector,” Australian Retailers Association chief executive Paul Zahra said.
Monthly consumer price index data released on Wednesday showed inflation had flattened slightly to an annual reading rise of 5.6 per cent in May, though food and non-alcoholic beverage prices had jumped by 7.9 per cent in the past 12 months.
Quick service food retail operators have been upbeat about trading conditions despite consumer spending concerns.
Shares in major local KFC franchisor Collins Foods have surged by close to 16 per cent so far this week, after the company reported a better-than-expected full-year financial result. Its network of more than 200 Australian KFC restaurants hit $1 billion in annual revenues for the first time.
Collins Foods boss Drew O’Malley said the business had been trying to minimise product price increases wherever possible to show diners that its restaurants remained good value.
“We think the decision not to seek a full offset to short-term cost pressures via menu pricing has been the right decision for the consumer,” he said.
Zahra said takeaway food options were well-placed as consumers “traded down” to more affordable eating-out options.
“In quick-service restaurants, what we are seeing is they are doing well [as] we are seeing consumers going down the price hierarchy,” he said.
But the retailers’ association is cautious about the spending outlook overall as sales continue to slow across household goods, clothing and in department stores.
Turnover among household goods retailers jumped by 0.7 per cent to $5.7 billion in May, but it’s down by 4.4 per cent since May 2022.
On Wednesday, electronics retailer Harvey Norman flagged a pre-tax profit slump of at least 25 per cent for the 2023 financial year, prompting retail analysts to warn the worst is yet to come.
Citi’s equities team said the outlook for further interest rate rises had worsened since the beginning of the year, making the spending outlook tougher.
“We expect conditions to worsen given the further roll-off of fixed rate mortgages and further interest rate hikes,” Citi said in a note to clients.
This follows a flat result in April 2023 and a 0.4% rise in March 2023, with year-on-year retail spending up 4.2%.
Despite the 0.7% rise from April, clothing, footwear and accessory sales dropped alongside department store sales at 0.6% and 0.5% respectively. Marking the only drops across all retail, the two sectors slipped by $28.8 million (-$18.5 million for fashion and -$10.3 million for department stores).
This follows a rise in April for both sectors when sales were boosted by increased spending on clothing items due to cooler and wetter-than-average weather.
According to ABS head of retail statistics Ben Dorber, the overall rise in sales was buoyed by lifts in discretionary spending and food retail, including eating out.
“This latest rise reflected some resilience in spending with consumers taking advantage of larger than usual promotional activity and sales events for May,” Dorber said.
Other retailing recorded the largest rise at 2.2%, ABS reported, with turnover growing strongly across a variety of businesses, including online-only retailers, florists, and pharmaceutical and cosmetics retailers. An early start to some end-of-financial-year sales events boosted turnover along with Mother’s Day and the ‘Click Frenzy Mayhem’ sales event.
“Just as we saw during the November Black Friday sales last year, consumers appeared to take extra advantage of discounting during large sales events in May in response to cost-of-living pressures,” Dorber said.
National Retail Association CEO Greg Griffith said despite an overall tightening on discretionary spending, Australians seem ready to splurge when the occasion arises or during sales promotions.
However, the good news may soon end as Griffith warned the 5.75% payroll cost increase that goes into effect on 1 July could push inflation higher and weaken retail trade in the coming months.
“The wage increase has dampened any hope of the Reserve Bank pausing interest rates next month, which will further injure consumer confidence,’’ Griffith said.
Meanwhile, Australian Retailers Association (ARA) CEO Paul Zahra noted that household goods sales have experienced a decline over the last six months. The sector is currently down 4.4% year-on-year compared to May 2022, despite a 0.6% rise on April 2023.
Zahra said he expects this to be a bellwether for most consumer spending in the months ahead.
“It’s important to remember that cost-of-living pressures typically have a lag effect on retail – which is why we’re seeing a gradual softening in spending,” he said.
“Clothing and department stores are still showing modest growth, but this is mostly driven by early promotional activity and cooler than average temperatures.”
Zahra said cost-of-living and cost-of-doing-business pressures remain the greatest concern for retailers.
“While we’re seeing a softening in spending, retailers are simultaneously feeling the pressure from increasing operating costs across the board,” Zahra said. “We are now experiencing a collision between the cost-of-living crisis and a cost-of-doing business crisis”
Across the states and territories, retail was up in all states and territories except Tasmania, which was down 0.1% on the prior month. The Northern Territory recorded the largest rise of 1.6% and is now its highest level
“Conditions for small businesses are less favourable than their larger counterparts,’’ Griffith said.
“The recent Federal Budget has delivered on some cost-relief measures such as the Small Business Energy Incentive and the continuation of the instant asset write-off. However, there is still a need for ongoing government support for the retail sector.”
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.
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.
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.”
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.”
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.
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.
US giant Amazon is projected to reach $5.5 billion in Australian turnover next financial year, and will keep thriving as more shoppers seek better value for money, says broker Jarden.
Ben Gilbert, who heads the Jarden research team, said a perfect storm was brewing for Amazon to gain more share of consumers’ wallets propelled by a weaker macroeconomic backdrop and more customers doing price comparisons.
“Amazon is maintaining momentum in a slowing market, taking greater than 10 per cent of incremental sales excluding food. Amazon thrives as consumers seek out value, they research more, with Amazon’s range and pricing putting it as a first point of call,” he said.
Mr Gilbert said the sectors most at risk remain office, electronics, fashion, house and garden, and recreation. In Australia, Amazon’s penetration and Prime membership take-up was high, suggesting scope for material growth ahead, he added.
The e-commerce giant has more than doubled its operational footprint in the past year after the launch of its first robotic fulfilment centre at Kemps Creek in western Sydney. Australia has been one of Amazon’s most successful new market entries, according to Mr Gilbert. Its direct impact has been less visible owing to a retail boom, COVID-19 and overhyped expectations when the marketplace first launched in 2017.
Amazon Australia had a strong 2022, with reported revenue rising 50 per cent year-on-year to surpass $2.6 billion. Jarden estimates it generated about $4 billion of gross merchandise value, which includes sales from third-party merchants.
Over the next 24 months, as Amazon adds more postcodes to its same-day delivery service in Melbourne and Sydney, it will continue to expand its addressable market. But it needs to add more major brands to keep shoppers coming back.
Amazon Australia offers about 200 million items, but overseas that figure is about 300 million.
Mr Gilbert said if Amazon achieved this, it would heap more pressure on discretionary retailers such as Adairs, shoe seller Accent Group, marketplace Kogan, youth retailer Universal Store, Peter Alexander-owner Premier Investments, JB Hi-Fi and Harvey Norman.
While many retailers are mulling staff cuts, Amazon Australia flagged plans to hire more than 1000 seasonal workers preparing for the mid-year sales season.
Loyalty and last mile capabilities are another battleground for Amazon. Mr Gilbert thinks brands with the most active customers – those that have purchased in the past 12 months – will have more ability to withstand competition.
“Customers find the most beneficial programs are those that accumulate points to save for a big reward or redeem small rewards more quickly, more than special recognition or special access to new product,” he said.
Mr Gilbert said the 5.75 per cent increase to minimum wages from July 1 flagged by the Fair Work Commission last week created a material headwind for retailers, which were already battling rising utilities, rents and outbound freight. A weaker Australian dollar would also create challenges for vertically integrated players next year as hedging rolls off.
