'Shop down' effect expected if international recession spreads

By Peter V O'Brien

Friday 28th September 2001

Share prices in the retail sector held up well in the past six months, including the post-terrorist attack period.

Closing prices on Monday are in the table and compared with those on March 12, the cutoff date for The National Business Review's last consideration of retailers on March 16.

The table includes profit changes in the latest reporting period, which, in the case of Arthur Barnett and Hallenstein Glasson, were interims for the six months ended February 1.

Those companies have half- and full-year financial reports that coincide with their "seasons."

Restaurant Brands was included, because its fast foods business is essentially retailing, while e-commerce retailers were omitted.

It is impossible to forecast what could happen to retailers if the threat of international recession spread to New Zealand, except to note that people tend to "shop down" in tough economic times.

Any shopping down should be to the benefit of retailers who cater to a broad spectrum market, rather than dealing in specialty goods.

That does not mean niche stores, targeting people on relatively high incomes, would suffer depressed sales, because individuals with substantial spending power will spend in good and bad times.

Arthur Barnett's interim report said its three stores benefited from the flow-on effect of the buoyant rural economy but the retail sector remained very competitive.

Its Christchurch store was performing below expectations but continued to improve as there was increased consumer awareness of its existence.

The company said it expected a continued improvement in performance for the rest of the year ended August 1. Interest will focus on what it has to say about the current year and any impact from international and local uncertainty.

Hallenstein Glasson's half-year profit was a smidgen above that of the corresponding period of the previous year. The company said it was "cautiously optimistic" for the rest of the 2001 winter season when the interim report was released on March 30.

Group sales for the first two months of the winter were 2.75% above the same period of 2000.

The company was "still focusing on competing aggressively in the fashion apparel market and capitalising on the growth opportunities presented to it."

Retail jeweller Michael Hill International enjoyed solid share price growth in the six months prior to March, but there was an understandable price appreciation slowdown in the ensuing six months particularly as the profit gain was only 1% in the year ended June 30.

The company said in August it had "announced a record tax-paid profit of $10.039 million" but then commented quietly, if that could be done in print, the improvement was 1%.

Australia was Michael Hill's problem. It could be still be a problem in the aftermath of world events. Australians are closer to international economic, financial and political events than New Zealand, although we are not immune to them.

Directors and management of Michael Hill might not like references to shopping down in relation to their company's operations but the company has always emphasised its strategy to target a mass market rather than wealthy matrons.

It welcomes the latter, although not relying on them.

Mass-market jewellery retailers could come through the current situation in good shape, assuming people in younger age groups are less inclined to react to perceived international crises than older people who have tempered a "live for today" attitude with experience of troubled times.

Pacific Retail's share price jumped after entrepreneur Eric Watson announced a bid from his Cullen Investments for the 37% of the appliance and electronic goods retailer it does not already own through subsidiary Logan Corporation.

Pacific Retail must obtain an independent report on the offer, so a share price rise of 1c above the offer price on Monday could be a suggestion from the market that the eventual offer could be higher than $1.76.

Alternatively, people could have been carried away on a day when there was gloom everywhere, particularly in the airline world.

The Warehouse Group was another retailer to suffer in profit terms from entry into Australia. Investors were prepared to re-rate the company's shares from the situation earlier this year when they went off the stock.

While the company would benefit from any shopping down (which has nothing to do with the quality of its merchandise), its substantial reliance on relatively cheap imported products will face pressure from any continuing weakness in the currency.

Retailers and their share prices depend on consumer confidence, a commodity in short supply these days.

RETAIL COMPANIES' SHARE-PRICE PERFORMANCE
Company	Price 24.9.01 c	Price 12.3.01 c	% change 3.01/9.01	2001 high c	2001 low c	Profit change latest period %

A Barnett	83	83	NIL	95	80	+35.5¹
Hallenstein Glasson	260	230	+13.0	296	221	+0.8¹
Michael Hill	410	385	+6.5	452	345	+1.0
Pacific Retail	177	140	+26.4	177	123	+35.1
Restaurant Brands	147	142	+3.5	165	126	-18.9
The Warehouse	580	565	+2.6	165	126	-18.9
Kirkcaldie & Stains	452	N/A	N/A	505	440	N/A

(1) Interim; final due soon

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