Retail Sector - consumer caution

Retail Sector - consumer caution. Jo Little, Senior Analyst at Morgans, looks at some factors influencing the retail sector right now. Little says; The elephant in the room is the lower AUD. Many in the market say a lower AUD is a net positive for retailers given less leakage to offshore online sites. We refute this and believe the impact the lower AUD has on a retailer's cost of goods sold has a far greater influence (to the negative). Given robust hedging policies, most retailers won't see a meaningful impact until 4QFY15. It will be at this time and given the stark reduction in the AUD of late, that some pain starts to flow through. A retailer's first response to higher COGS is typically to increase their first retail pricing. We are concerned that lifting prices in a highly cautious consumer environment may have material consequences on like-for-like sales growth. Additional thematics and Morgans' preferred retail exposures are available here: (VIEW LINK) @morgans