Sunday Jan 29, 2023

Investment Tips from My Local Shopping Centre – Money Morning Australia – Money Morning


In today’s Money Morning…pandemic spending: boom to bust…inventory glut…what to expect…finding investment ideas with secular headwinds…and more…

I visited my local shopping centre on the weekend, and while the experience was as drab as ever, I did notice something.

Many shops were offering huge discounts. 50%, 60%, even 70% off.

A deserted men’s fashion retailer was offering 70% off on suit jackets and cashmere sweaters.

Shopping centres always have some stores offering discounts.

But this felt different. Almost everywhere I looked, I saw banners, stickers, and placards advertising big sales.

I wondered, is there anything in this?

Can my local shopping centre be emblematic of a wider phenomenon?

Pandemic spending: boom to bust

The pandemic — and lockdowns — were a boon for many retailers.

Cooped up at home, with our savings growing, we splurged on goods.

Home office upgrades, home renovations, latest tech gadgets, Pelotons…

As a Reserve Bank of Australia retrospective noted:

‘Goods consumption increased strongly as consumers substituted away from services where consumption possibilities were limited or not available. Groceries to cook homemade meals replaced restaurant visits, sports equipment substituted for closed gyms, home office equipment filled in for trips to workplaces, and toys and games stood in for organised children’s activities. Similar patterns have been observed in other advanced economies.

‘The strength in goods consumption was most pronounced for home entertainment items, appliances, furniture and home renovation goods, with retail sales for these categories in the June quarter of 2020 typically 20–30 per cent higher than a year earlier.’

Our spending on goods was so exuberant that it quickly bounced higher than pre-pandemic levels.

But it was a mistake to think this was a permanent shift.

Our splurging simply brought future purchases forward. We weren’t going to sustain the trend forever.

We didn’t need to buy a new standing desk every year, or a new laptop, or a new set of dumbbells.

And once restrictions eased, our focus on goods shifted back to services.

It all painted a lousy picture for retailers who continued to operate under the assumption that consumer spending would be elevated indefinitely.

And that’s before inflation spiked.

Here’s a quick illustration, a tale in two pictures:

Inventory glut

As economies worldwide titter on the edge of recession and households grapple with rising prices, companies are facing an inventory glut.

Retailers’ inventory problem is also exacerbated by supply chain delays, as back orders arrive months after consumers lose interest…or the capacity to pay.

Just look at what’s happening to the largest retailers in the US.

As Talk Business reported in late June:

‘Last month, Walmart surprised investors when it reported 32% higher-then-expected inventory for the first quarter ending Feb. 1. Costco said inventories were up 26% from the previous year, and Target saw inventories up 43% against a 4% revenue gain in its recent quarter.

‘The cost of carrying extra inventory took a toll on company revenues for the recent quarter. The inventory glut was widespread across the retail landscape with a 17% gain at Macy’s, 40% inventory growth at Kohl’s and Dick’s Sporting Goods with Gap seeing a 34% inventory oversupply.’

All this prompted Moody’s Investors Service analyst Mickey …….


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