The share price of Harvey Norman Holdings Limited (ASX: HVN) fell more than 7% yesterday against the backdrop of a difficult retail environment.
Fellow discretionary retailers also did it tough with Myer Holdings Limited (ASX: MYR) and JB HI-Fi Limited (ASX: JBH) down 4.8% and 4.5% respectively.
Wesfarmers Turning Up The Heat
At a strategy briefing day yesterday, Wesfarmers Limited (ASX: WES) laid out its plan to continue its push into the Home, Lifestyle & Commercial market which the company estimates is worth $78 billion. Bunnings Warehouse, owned by Wesfarmers, has in recent times begun selling a range of smart home products which places pressure on traditional electronics retailers such as Harvey Norman and JB Hi-Fi. Given the huge success of Bunnings, which has seen its sales grow nearly every year for two decades, it certainly poses a threat to the dominance of the traditional retailers.
It didn’t end there though with Wesfarmers also announcing a major expansion within their Officeworks operation. Their plan to expand further into the connected home market will compete directly with Harvey Norman through the sale of products like Google Home, Amazon Echo and other such ‘smart home’ devices.
Where To Now?
It is a difficult time to be a retailer, even more so when you’re relying on non-essential spending. However, it’s not all bleak. With another interest rate cut imminent, debt laden homeowners will receive a reprieve on their monthly mortgage repayments. Further, with a government that will be hell bent on avoiding a recession at almost any cost, I expect to see further fiscal stimulus as deemed necessary to avoid the worst case scenarios being bandied about.
Would I Buy Harvey Norman Shares?
With the share price falling to just below $4.00, I have placed Harvey Norman on my extensive watchlist. However, I won’t be buying yet. Given the extremely competitive environment within which they operate and a slowing economy, I would probably need to see the share price under $3.50 before being tempted into jumping in.
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Disclosure: At the time of publishing, Luke has no financial interest in any company mentioned.
