Patience with the retail sector is wearing thin

JOHN DURIE
FEBRUARY 20, 2019
The Australian

Scentre Group’s shopping malls are now 35 per cent filled with so called “experiences” – from gyms to restaurants – up from five per cent 10 years ago and according to boss Peter Allen it’s heading closer to 50 per cent.
Woolworths’ online sales grew by 30 per cent in the latest half, heading to $2 billion for the full year, just as Coles is also reporting rapid growth in so-called digital sales.
Shopping malls, according to Stockland’s Mark Steinert, are more akin to living centres or entertainment venues than a place to go for a new wardrobe or the weekly groceries.
But the reality, as Woolies’ Brad Banducci will tell you, is that retailing is changing more than most of us realise.
That’s part of the reason he is spending $2 billion a year on capital expenditure to get Woolies ready for the new world.
But in this market, patience has worn thin.
Based on today’s analyst call, Bank of America Merrill Lynch’s David Errington is throwing in the towel and the long-time Woolworths bull will presumably cut his price target for the stock from the long-held $37 a share.
In lunchtime trade all the retail-related stocks were down big time, with Woolies sliding 5.3 per cent at $28.64, Coles was down 4.3 per cent at $11.54, Stockland 3.1 per cent lower at $3.67 and Scentre down 3.9 per cent at $3.85.
Digital disruption is being perhaps misinterpreted as meaning the economy is going down the toilet.
If, as expected, Qantas posts a strong result tomorrow that will be further evidence of the theory that people are favouring experiences over, say, an extra shirt.
The hard reality for Woolworths’ Banducci is that after spending $4 billion over the last two years, he posted negative earnings growth last half.
If companies spend money investors look for a return and once again the debate is over time – the market is too short term and companies are maybe spending too much on the long term.
Until now Banducci has managed to avoid negative scrutiny because he has won the market share battle with Coles and resumed leadership in same-store sales growth.
The reality is the gap between Coles and Woolies is not getting any bigger and the spin from Banducci needs to change.
At the same time his superstar liquor retailer Dan Murphy’s has hit a brick wall and the market is asking whether at 50 per cent market share it isn’t getting any bigger.
The truth is the store executed badly last quarter and built up too much inventory which couldn’t be sold at the right price, so profits fell.