Sales warning for Coles amid ‘collectables fatigue’
“Collectables fatigue” is setting in, says an analyst who warns Coles faces a rare slide in sales.
With Coles and Woolworths flooding the market with toys, could Australian shoppers be experiencing collectables fatigue?
That’s the concern of Citi, which has forecast that supermarket Coles will report its first quarter of negative like-for-like store sales in 12 years.
It appears its Little Shop collectables campaign won’t save it this time, and it’s partly thanks to Woolworths’ Lion King toys wrestling parents back to its stores.
While execution of Coles’ Little Shop 2 has been strong and there are a few new features to drive “incremental interest” from shoppers, consumers are showing the strains of seven major toy-based collectable programs in the market over the last 12 months. This is withering the sales power of the collectables campaign strategy.
Citi analyst Bryan Raymond, in a note to clients overnight, said Coles was heading for its first negative like-for-like sales result in 12 years. He is tipping a 0.4 per cent fall for the first quarter of fiscal 2020.
Mr Raymond sheets home the expected retreat in same-store sales to a number of factors including cycling Little Shop 1 from last year, the competing Lion King Ooshies collectable program launched by Woolworths on the same day as Coles, and cycling the boost from free reusable plastic bags last year.
If Coles does report a slide in first quarter same-store sales it will bring to an end a stellar 12-year run of growing like-for-like store sales that included a decade of beating the sales growth at rival Woolworths.
Woolworths turned the tables on Coles in the second quarter of 2017, finally trumping Coles’ sales growth for the quarter. Since then the rivals have fought a pitched battle to bring in shoppers, using campaigns like collectables.
On August 22 Coles chief executive Steven Cain will unveil the company’s first full-year results as an independent company since it demerged from parent Wesfarmers in November. Citi has downgraded its 2020 net profit forecast by 1 per cent to $893.7 million.
Little Shop proved a huge success last year for Coles, helping to ramp up its quarterly sales to more than 5 per cent growth, one of its highest sales results in years.
But Citi is now concerned that Little Shop 2 has lost some of its punch.
“Little Shop 2 well executed, but effectiveness diminished,’’ Mr Raymond said.
“Coles has replicated many of the same elements which proved successful in Little Shop 1, with limited new features to drive incremental interest. Execution has been strong, and supplier funding has increased by around 20 per cent, reducing operating deleverage.”
But “collectables fatigue” looks to have set in.
“In addition, shoppers are experiencing collectable fatigue following seven major toy-based collectable programs in 12 months. Little Shop was highly effective for Coles in first quarter of 2019 in part due to the novelty effect of the miniatures, but also due to not having competitor collectable programs attempting to neutralise the impact of Little Shop.
“In the first quarter of 2020 the Lion King Ooshies collectable campaign is expected to reduce the effectiveness of Little Shop 2 for the four weeks where the programs clash, resulting in Coles like-for-like sales growth of -4 per cent until mid-August, increasing the risk of a downbeat trading update from Coles at the fiscal 2019 result.”
There have been a string of collectables campaigns from the supermarkets in the last 12 months including Little Shop 1, Little Shop 2, Christmas Little Shop, Christmas Pop-outs and Fresh Stikeez.
Citi believes Coles like-for-like sales growth is expected to take a hit in the first quarter of 2020 as they cycle Little Shop 1 and plastic bags, while also competing with Lion King Ooshies. After the first quarter Citi expects the recovery in like-for-like sales growth to resume its path back towards 3 per cent, which it views as a normalised level longer term.
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