Regal Partners Investment Director Charlie Aitken has issued a clear warning to investors eyeing the ASX’s retail stocks: “Don’t be a hero.” Regal Partners is a prominent investment firm with over $20 billion in assets under management. The S&P/ASX 200 consumer discretionary index has plummeted 23.2 per cent over the past year, trailing only the local technology sector in losses, as the Reserve Bank of Australia aggressively lifts interest rates to combat inflation. This week saw further alarm bells, with negative trading updates from Myer, Premier Investments (owner of Smiggle), and KMD Brands, which owns Rip Curl and Kathmandu.
The pain for consumers appears set to continue, as financial markets anticipate a near-certain RBA interest rate hike to 4.6 per cent at its next meeting, with further increases expected early next year. This could push the cash rate above 5 per cent, a level not seen since the Global Financial Crisis in 2008. The national property downturn, with home prices down 4.5 per cent from their April peak, further creates a negative wealth effect, curbing consumer spending. Electronics retailer JB Hi-Fi’s share price has sunk 43.4 per cent in the past year, while Myer is down almost 60 per cent, and ARB has fallen 53.2 per cent. Mr. Aitken advises staying on the sidelines, noting that Australia’s mortgage belt is under significant pressure, leading consumers to rein in discretionary spending. Centennial Asset Management, which manages about $200 million in assets, echoes this sentiment, with Matthew Kidman stating, “No one can see the bottom yet.”
A key warning sign for further sector decline, according to Mr. Aitken, would be a national jobless rate hitting 5 per cent. Data from the Australian Bureau of Statistics showed the rate cracked 4.6 per cent in August, the highest since 2021. The retail industry’s gross profits fell 5.2 per cent in the three months to June, the largest quarterly decline since March 2024. Recent troubles include Cue Clothing Company falling into administration and David Jones facing issues with supplier payments. KMD Brands reported a full-year loss exceeding $300 million, while Myer posted a nearly $300 million annual loss, and Premier Investments saw profit more than halve. Solaris Investment Management, a firm overseeing $8.1 billion in assets, closed its short position in JB Hi-Fi, remaining sceptical of a broader consumer recovery. Lazard Asset Management, which manages $1.4 billion in Australian equities, with $380 million in its Australian equities fund, prefers defensive stocks and those with overseas exposure, such as fast-food companies like Domino’s Pizza Enterprises and Collins Foods, which tend to perform better when economic conditions are tough.
