Spending on household goods to fall in post-virus world: UBS

Sales in household goods are expected to fall by approximately 8 per cent in FY21 due to the impact COVID-19 will have on the Australian economy, data from investment firm UBS released last week posits.

According to UBS analyst Ben Gilbert the outlook for the sector is changing rapidly.

While house price growth and turnover were increasing and completions bottoming before COVID-19, Gilbert expects all three metrics to slump in a post-virus world driving Australia to its first recession since 1991.

The two major players in the sector, Harvey Norman and JB Hi-Fi, are likely to be able to withstand this impact – despite the fact that recent sales increases are likely to fall in the short-term.

“To date, COVID-19 has resulted in accelerating like-for-like growth for both Harvey Norman and JB Hi-Fi with LFL up 1 per cent and 10 per cent respectively for 3Q FY20,” Gilbert wrote. 

“This is a result of increased ‘at home’ purchasing. We expect this to last for the next ~1 month, before LFL growth trends deteriorate to a 10 to 20 per cent year-on-year decline.”

UBS’ data expects to see Harvey Norman’s sales fall dramatically over the next two years, leading to a 20 per cent fall in NPAT for FY20, and a 37 per cent fall following in FY21. 

JB Hi-Fi should fare better, with NPAT expected to fall 2 per cent in FY20, followed by a steeper 23 per cent fall in FY21. 

Online growth likely, but impact to be minimal

In the past week footfall has fallen nearly 70 per cent across the industry according to data from Shoppertrak, though Gilbert said industry feedback suggests in-store transaction values are up 10 per cent. 

A big change, however, is likely to be seen online as shoppers get used to the idea of having goods delivered to their place of residence during self-isolation.

However, this change could mean little to the sector as a whole, due to the relatively small amount of shoppers transacting online. 

“COVID-19 will accelerate the shift to online both in the short and long term,” Gilbert said. 

“[However], with online only ~6 per cent of sales for JB Hi-Fi, if online sales rise 50 per cent this is only a ~3 per cent benefit to sales (all else equal).”

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