Specialty retailers to feel the heat

Specialty shops and retailers will be particularly affected by a deteriorating retail outlook, according to analysts and brokers.

A monthly report from broker Citi says the end of huge deflation in the wholesale prices of clothes and appliances will cause a shake out of retailers, with middle market retailers most at risk of losing their customer base.

The Citi report said the industry shake-up was caused by the end of cheap Chinese imports, due to the rising Australian dollar and Chinese inflation, the Sydney Morning Herald reports. While the price of clothes and electricals had fallen consistently for 10 of the past 15 years, this would end within the next year or 18 months as prices started to rise, the report said.

Retailers with low operating costs would cope best with absorbing future rises in wholesale prices. Those set to benefit from the shake-up would include the listed retailers Harvey Norman, Just Group – subject to a takeover by Solomon Lew’s Premier Investments – and David Jones.

Meanwhile stockbroker JP Morgan reports that the outlook for retailing will deteriorate. It has cut forecasts for fashion retailer Just Group’s earnings per share for 2008-09 and 2009-10 by 2%, but simultaneously increased it 0.3% for 2007-08 to account for the value difference between the Australian and US dollar.

The broker says that lower spending is expected to hit specialty clothing shops and trigger discounting, reports The Australian Financial Review today. To blame are higher prices for food, petrol, energy and rent plus rising interest rates will hurt the 35% of houses with mortgages.


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