S&P/ASX 200 Index (ASX: XJO) retail shares are in focus as households get to grips with inflation and higher interest rates.
There has been much volatility on the ASX in 2022.
Certainly, a number of ASX retail shares are trading considerably lower year to date:
The Wesfarmers Ltd (ASX: WES) share price is down 23%.
The Harvey Norman Holdings Limited (ASX: HVN) share price is down 17%.
The JB Hi-Fi Limited (ASX: JBH) share price is down 19%.
The Premier Investments Limited (ASX: PMV) share price is down 30%.
The Super Retail Group Ltd (ASX: SUL) share price is down by 24%.
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What is happening in the retail sector?
Reporting by The Australian has revealed households are now spending more on services than goods.
A report by Deloitte Access Economics says that this is a "turning point" and it's being driven by faster price growth. This means that product prices are driving sales growth, rather than volume growth. Historically, volume growth has been more important.
It's tricky for ASX 200 retail shares because not only are they charging customers more for products when those customers are facing pressures in their budgets, but the retailers are dealing with higher rent and wage costs.
The Australian quoted Deloitte Access Economics partner and principal report author David Rumbens:
But cracks are starting to show as the economy faces a number of challenges.
Domestically, there has been broad based price growth, especially in retail, fuelled by global supply chain disruptions and supply shortages. There are also higher interest rates to deal with and service capacity constraints in some areas of the economy.
Retail prices increased 4.8% through the year to the June quarter, with the largest price rises seen in food and household goods – the categories where consumers are reining in their spending.
Indeed on a quarterly basis the turning point for overall retail price growth to exceed sales volume growth has already been reached. This occurred in both the March and June quarters of 2022.
What next for ASX 200 retail shares?
Rumbens said that retail price growth is expected to be 5.9% for the year to December 2022, while volume growth is only expected to be 3%.
The strong employment situation in Australia is essentially a double-edged sword, according to Rumbens. Almost everyone who wants a job has a job, which has been good for retail spending. But, at the same time, it means that retailers are finding it hard to get staff.
Since May 2019, retail job vacancies have reportedly doubled. But, with lower margins, retailers reportedly aren't able to afford large wage rises.
Will the staffing situation be resolved soon? Rumbens doesn't think so:
Importantly, the industry is missing a key component of its workforce, being migrants and especially international students.
Even with this being a key focus of the federal government's jobs and skills summit last week, it's unclear if, and when, international students will return to their pre-pandemic levels.
The higher share of casual and part time workers in the retail workforce is likely also weighing on the industry's ability to retain workers.
With fewer entitlements binding these workers to retail jobs and high transferability of skills between retail jobs, workers are more likely to shift between employment.
The Reserve Bank of Australia (RBA) is determined to bring down inflation and lower economic activity with higher interest rates, so it'll be interesting to see what happens next with retail product prices and ASX 200 retail shares.
