Our research shows that housing churn is the strongest driver of household goods sales across Australia, the UK and NZ. Housing churn, which represents the loans on owner occupier homes and refinancing, is driven by changes to interest rates with a three month lag. Given different interest rate cycles, we forecast housing churn to drop 10% in Australia, but better outcomes in the UK and NZ in FY27e. There is a strong chance that furniture sales decline by 4% in Australia creating earnings risk for Harvey Norman, Nick Scali and Temple & Webster. JB Hi-Fi will see a slowdown in electronics categories too.

The debate about Australian wage rates is about to flare up as submissions are made for the FY24e minimum wage determination. We think a result anywhere from 4%-8% wage rate growth is possible. At 4%, retailers are likely to manage decent margin outcomes given some variability in staff costs. At 8%, the impact on retailer EBIT could be a hit of 5%-15%. For consumer goods producers the earnings impact could be -20%. The retailers most vulnerable are Domino’s and the supermarkets, Coles, Metcash and Woolworths. Costa and Inghams have high fixed wage costs and could be hit too, but the impact may be smoothed over two years given enterprise agreements.