A number of big Australian retailers have changed their expansion strategy over the last six months.
That’s the conclusion drawn by three Morgan Stanley analysts, who combed through transcripts of Bloomberg interviews from the most recent company reporting season
John Lee, Lou Pirenc and Jessica Alderson summarised their findings in a research note called “From the horse’s mouth – store rollout intentions”.
This table shows how retailers changed their outlook in August, compared to the February reporting season:
The analysts said that compared to six months ago, “retailer comments suggest reduced focus on store rollouts and increased discussion on store closures”.
They also picked up a trend that indicated more of a focus on refurbishments to existing stores.
Among the main takeaways, the trio noted that Bunnings remains strong, while results for discount department stores and specialty outlets were mixed.
While supermarkets Coles and Woolworths have moderated their expansion plans, the analysts highlighted Aldi’s plans to continue its aggressive expansion strategy.
For retail landlords, they said that tough operating conditions may have the effect of curbing rent increases.
While noting that some listed investment trusts currently now look cheaper based on certain valuation metrics, the analysts were hesitant to issue a re-rating due to the challenging conditions facing the retail industry more broadly.
After a strong run through the middle of the year, retail sales missed expectations today. Earlier this week, input data for GDP showed that the household savings rate continues to decline, as Australian wage growth remains low with increasing cost of living pressures.
Conversely, business conditions remain strong. In view of that, the analysts favour real estate investment trusts (REITs) with more of a focus on commercial logistics, and are underweight REITs with interests in shopping centres and retail.
Here’s a table of Morgan Stanley’s top stock picks in the Australian REIT sector: