Shoppers engaging in retail therapy despite the spectre of even more serious job losses and mounting evidence the virus is far from vanquished.

According to the Australian Bureau of Statistics, retail sales rose 2.4 per cent for the month of June, to $29.7 billion. This was an 8 per cent rise on the previous June and backed up a 17 per cent surge in May.

Separately, the recent knockout numbers from the ‘buy now pay later’ providers add to the impression that consumers remain willing to shop 'til they drop – either from COVID-19 or foot blisters.

But while the mantra goes that ‘we’re all in this together’, a two-speed retail economy is emerging in the discretionary sector. In top gear are the online-oriented purveyors of ‘must have’ (or even just ‘nice to have’) stuff, as well as electronics and (certain) homewares merchants.

Grinding in reverse are the dinosaur department stores and certain other specialty retailers in empty shopping malls. Need we mention Myer Holding’s $170 million market valuation compared with $1.75 billion for online-only Kogan (KGN) and $415m for food deliverer Marley Spoon (MMM)?

We acknowledge that the predominantly bricks-and-mortar Harvey Norman (HVN) and JB Hi-Fi, (JBH) are certified winners – and have the advertising budgets to prove it.

In the sprawling ASX small cap retail sector, less prominent examples are ‘enjoying’ the crisis for less than obvious reasons.

Take Beacon Lighting (BLX), which last year pre-announced a glowing 38 percent increase in reported profit for the year to June 30, of $22 million.

The group’s like-for-like (comparative) sales grew 7 percent to $251m and notably were 17 per cent higher in the suspect June half.

Despite temporarily closing its showrooms, furniture purveyor Nick Scali (NCK) in mid June reported June quarter sales to date increase of 20 percent, with June half net earnings expected to be 15-20 per cent higher.

A case of sofa, so good.

You would think that fancy chandeliers and occasional chairs would be a low priority in these straitened times.

But as Citi points out, their customers in the main are home owners, who are less likely to lose their jobs than younger consumers in the leisure, retail and travel sectors.

Further reflecting the trend, homewares group and former market laggard Temple & Webster (TPW) this week pre-released its underlying earnings for the year to June 30: $8.5 million, a stunning five-fold increase.

Elsewhere, Shaver Shop (SSG) shares have run nicely since a bullish update in mid-May, despite stay-at-home workers opting for the rugged hirsute look.

Affirming the trend in mid June, management reported a life-for-like sales increase of 23 per cent for the half to date.

The best explanation is that those Ned Kelly beards are better manicured than they look. Online turnover soared 164 percent and now account for 32 percent of sales.

Plus-size clothing specialist City Chic Collective (CCX) is booming and expanding globally – perhaps all those extra 'iso' kilos. The retailer has just raised a weighty $80 million, with circa $22 million slated to fund the potential purchase of the ecommerce business of US chain Catherines, which is in bankruptcy protection.

Baby Bunting (BBN) shows that alongside jigsaws, procreation has remained a popular indoor activity with 6000 new arrivals nationally every week.

The chain’s comparative sales rose 8 per cent between December 2019 and May this year, driven initially by nappies and baby wipes but then by bigger equipment such as cots and toys.

Will an ‘iso’ baby boom spark further demand? Time will tell …. nine months to be precise.

But as investors in apparel chain PAS Group would attest, it’s not all cheery at the shop front. The listed company collapsed in May, owing creditors $10 million and leaving shareholders without a brass razoo.

Plenty of privately owned retailers have also failed, including bikini Seafolly Group – whose balance sheet was a slender as its bikinis - and the legendary discount chain Dimmeys. The storied Harris Scarfe chain was an earlier casualty.

Potentially vulnerable stocks include Lovisa (LOV), which specialises in cheap-and-jewellery such as costume items worn when ‘going out’ (explain to the young ones what that term means).

The group’s like-for-like sales fell 32 per cent for the year to June bit with online sales growing 256 per cent in the June quarter.

In early July trans-Tasman retailer Kathmandu (KMD) said comparable sales had fallen 15 per cent in the ten months to the end of May, but with sales since then “exceeding management expectations” as stores re-opened.

Super Retail group (SUL) is an interesting one to watch, given its exposure to outdoors adventure (Macpac and BCF)), sport (Rebel Sport) and automotive retailing (Super Cheap Auto).

The company says life-for-like sales tanked 26 per cent in May, with sales rebounding by a similar degree in May.

Both Kathmandu and Super Retail completed equity raisings of circa $200 million, so are well prepared to weather further disruption.

Footwear specialist Accent Group (AX1) has a strong Melbourne bias – about one-third of its stores are in the pariah capital – and may face headwinds as its wholesale supplier Nike opts for a direct-to-consumer focus on distribution.

Accent operates The Athletes Foot, Platypus and Hype chains, as well as the mono-branded Merrell, Skechers, Vans and Timberland outlets. Management has guided to a 10 per cent increase in underlying earnings for the year to June 2020, with like-for-like sales up 10 per cent.

Looking through the surprisingly robust retail landscape, the JobKeeper and JobSeeker schemes have been supported the spending, as has the (popular) ability to dip into one’s super.

This month the federal government opted against subjecting Jobseeker/Jobkeeper recipients to cold turkey by extending modified schemes beyond September.

In the meantime Victoria’s renewed lockdown means July’s retail numbers should be far more subdued - despite the best efforts of the face mask and sanitiser racketeers.

Tim Boreham edits The New Criterion

tim@independentresearch.com.au

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