LA Private

Wesfarmers boss a bit of a bullish bear

Wesfarmers (ASX:WES) CEO Ron Scott got a lot of publicity on Tuesday for saying “the honeymoon is very much over” after the past few years of government handouts and ultra-low interest rates.

The head of the Perth-based conglomerate – which owns Bunnings, Kmart/Target and Officeworks – was speaking at an investor day for the company in Sydney.

His comments are belated recognition of what has been clear from the retail sales data now for months and what the heads of Woolies and Coles, for example, have been pointing out for much of the past year – that consumers were trading down (and reducing) their spending on high priced brands and products.

That’s confirmed by Australian Bureau of Statistics retail sales data for the past few months.

It said in Friday’s preliminary report for April that retail sales were flat (actually down a couple of million dollars) from what they were in March and only up 4.2% over the past year, meaning that with headline inflation running at 7% or more, sales have gone backwards.

ABS head of retail statistics Ben Dorber said on Friday that:

“Retail turnover has plateaued over the last six months as consumers spent less on discretionary goods in response to cost-of-living pressures and rising interest rates.

“Spending was again soft in April but was boosted by increased spending on winter clothing in response to cooler and wetter than average weather across the country,” Mr Dorber said.

Clothing, footwear, and personal accessory retailing (+1.9 per cent), and department stores (+1.5 per cent) were the only retail categories to rise in April.

Food-related spending was down this month, with falls in both cafes, restaurants and takeaway food services (-0.2 per cent) and food retailing (-0.1 per cent). Food retailing recorded its first fall following 13 straight monthly rises.

“The modest fall in food-related spending comes after a period of consistent growth driven largely by high food inflation,” Mr Dorber said.

After selling out of Coles several years ago, Wesfarmers and its CEO would not have had that feedback, though Bunnings is feeling the pain from the slide in building activity in housing and renovations, as we saw in the April approvals data from the Australian Bureau of Statistics – see separate story).

In his address to the investor day in Sydney, Mr Scott said a year ago was a time of unparalleled government stimulus, constraints on supply chains and purchasing behaviour, and ultra-low interest rates, when some retailers enjoyed a short-term bump.

“It was also one of the only times at least in the last few decades that I can recall where value wasn’t as important for households when they had very high levels of accumulated savings, very low interest rates, and value was not as important,” he said.

He claimed trading down should be a positive for Wesfarmers across its many businesses. The majority of Wesfarmers businesses provided essential products and were known for their value, which boded well given elevated inflation and continued cost-of-living pressures.

“We expect value to become even more important for customers, and we are seeing that today,” he said.

He said Wesfarmers was said in “very good shape” and there were possibilities to grow including in newer sectors such as health and lithium.

WES shares rose half a per cent to $49.30.