“Retailers with high volume, low margin products have had to spend a lot more to ensure that their supply chains can cope with all the disruption and chaos that’s gone on with lockdowns and with rising cases more recently,” he said.
Major supermarket Woolworths experienced this exact issue, telling shareholders in December it had been forced to wear $220 million in unexpected costs due to the supply chain crunch.
Woolworths has seen its cost blow out by $220 million due to COVID.Credit:
Market-watchers are also expecting store location to play a part in dictating this reporting season’s winners and losers. Citi analyst Adrian Lemme believes retailers with more standalone stores outside of shopping centres – such as JB-Hi Fi, Super Retail and Harvey Norman – will have an edge on those with more shopping centre sites.
“Customers just perceive a higher risk of going into a shopping centre at the moment given where case numbers are,” he said.
“If you think of like a big Harvey Norman, they’re quite spacious, and you can keep away from other people. We have heard, particularly in the older demographic, that’s something that plays out when cases are higher.”
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Mr Lemme agrees that operators such as Harvey Norman and JB Hi-Fi are less likely to be hit by supply chain woes, as inventory is often delivered directly to store by suppliers, meaning the suppliers wear any further costs.
“What will happen though is those suppliers, will try to pass on those costs to the companies, which they’ll obviously then have to pass on to customers,” he said.
Mr Woolford is picking Harvey Norman, Super Retail, JB Hi-Fi and independent supermarket supplier Metcash as potential winners for the upcoming reporting season, while he believes pizza seller Domino’s and drinks retailer Endeavour are likely to struggle.
Jamie Hannah, deputy head of investments at fund manager Van Eck, is similarly bearish for retail stocks over the coming months, however, he believes there’s a silver lining down the track, with households predicted to have saved over $260 billion since the beginning of the pandemic.
“At the moment, Australians are pretty cashed up,” he said. “They have a lot of money to spend, and they will come back in droves.”
