All retailers are not created equal

March 21, 2023
Market Thoughts & Insights

As we know, fiscal and monetary stimulus caused a rapid and broad-based upswing in consumer spending during Covid-19. This saw both high-and low-quality retailers deliver strong revenue growth over the last three years. Even retailers with a poor customer proposition saw strong sales growth, which coupled with government cost support delivered strong short term profit growth.

Understandably the market assumed that most of this benefit would fade across all retailers, forecasting large revenue declines across the whole sector. The market’s core thesis was the consumer would slow, and when it did, revenue would mean revert possibly below the trendlines of FY19. But this view failed to differentiate between those companies that reinvested and those that did not. The better management teams in our view had predicted that outsized sales results might be fleeting and they sought to buttress earnings with three years of investment in better distribution, increased range and store refurbishment.

In comparison, other retailers capitalised too much of their Covid sales boost without making significant changes to the way they served customers. The pathway for companies that reinvested and those that did not over the 1H19 to 1H23 period is now beginning to diverge. We look at the differences in recent sales and share price results for 1H23 in the attached. Download below.

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