Lights in the retail gloom

If you want to know what investors think of the retail sector, you only need to look at the list of the most “shorted” stocks on the ASX 200.

Short sellers borrow or take options over shares in a company when they believe its share price will fall. In other words, short sellers win when companies lose.

As a report today showed, half of the top 10 most shorted stocks are retailers. JB Hi-Fi leads the pack, with a stagging 21% of its shares sold short. Billabong, Myer, Harvey Norman and Flight Centre are also on the list and all have more than 10% of their shares sold short.

While JB Hi-Fi’s chief Terry Smart explained the high level of short selling is being driven by overseas hedge funds who have lumped his company into the same basket as struggling US retailers, the overall message here is pretty clear – the market expects the retail sector to get uglier before it gets better.

And with retail veterans such as RCG Corporation’s chairman Ivan Hammerschlag declaring these the worst conditions he has seen in 30 years, who can blame investors?

But while experts such as Ivan cannot be ignored, there are some glimmers of light in the retail gloom.

The other day I caught up with Sandra and Lawrence Boyle, the dynamos between the franchise retail chain WILD Cards & Gifts.

Naturally, my first question was about Christmas trading. And I’ve got to say I asked it with a little bit of trepidation.

But happily, the Boyles were very positive. Sales are ahead of last year, their growth plans are firmly on track and the interest rate cut has made a real difference to the mood of consumers.

While WILD is somewhat protected by the rise of internet shopping because of the type and price of the products it sells, the Boyles show that there is some light at the end of the tunnel.

Bigger retailers such as Myer and JB Hi-Fi are also noticing a slight increase in sales; it’s “not a high-five worthy return to high spending” as Myer’s Bernie Brookes put it – but it is “looking pretty promising”.

I’m not sure executives such as Brookes and Gerry Harvey will ever seek the “high-five worthy” spending that marked the pre-GFC years. Too much has changed in the psyche of consumers and the rise of online retail has probably changed these businesses forever.

But there are reasons to hope that retail is clawing its way back from the abyss and as Lawrence Boyle told me, another pre-Christmas rate cut would accelerate the recovery brilliantly.

Another glimmer of hope for retailers comes from the world of commercial property. As WHK retail expert David Gordon told us yesterday, there has never been a better time to negotiate with landlords, who are becoming increasingly concerned at the prospect of seeing empty shops.

Obviously that suggests the retail collapses aren’t over, but for retailers who can get through Christmas in good shape, it could well be the time to have a serious talk with your landlord about a better rent deal.