A report released today highlighting an improvement in retail sector sentiment flies in the face of the massive shorting of stocks in the listed retail sector.
The latest report by Dun & Bradstreet indicates that retailers expect consumers to spend up big this Christmas period, with sales expectations for the December quarter hitting highs not seen since 2003.
This comes as retail sales data for July surprised heavily on the downside today, with spending falling 0.8 per cent for the month after a 1 per cent rise in June.
However, the Dun & Bradstreet survey says to meet the Christmas rush retailers are in the process of increasing their product orders and staff. Indeed, the survey says that the inventory index has risen from negative eight to 33.
The report follows a report released by Deloitte Access Economics, showing that retail sales growth has risen 2.8 per cent in the six months to June 30, which is a stronger result than the previous two years.
But the surveys are taken from a consumer and a retailer point of view rather than an investor perspective, which is concerned about the structural shift going on in retail.
The key structural shift is the impact of online shopping, particularly from overseas. According to NAB Online Retail Sales Index survey in July now represents 5.3 per cent of the total $220 billion of sales. To put it into perspective internet sales rose 29 per cent in July.
It is this switch to online which is dominating the minds of hedge funds and investors who want to hedge their bets on their investments.
A look at the 25 most shorted stocks in the past two months shows that retail stocks dominate. Consumer electronics retail JB Hi-Fi is the most actively shorted stock on the market, with more than 20 per cent of its shares shorted in July and August, which represents more than 20 million shares.
Flight Centre is the second most shorted stock, The Reject Shop is the fifth, followed by Myer at number six, Harvey Norman at number nine and David Jones the 10th most actively shorted stock.
Most of these companies have just released their earnings results and if the level of short selling activity is any guide, many investors are hedging themselves for more bad news to come.
In the case of JB Hi-Fi, its results were in line with market forecasts, after the company downgraded guidance earlier in the year. It is also launching a new online website to boost its online sales, but investors are not convinced given consumer electronics is the most attacked segment of the international online market.
Harvey Norman founder and major shareholder Gerry Harvey tried to put a line in the sand after it suffered a 32 per cent fall in profit, but a key issue is its property portfolio, which many believe needs to be written down further than the $36 million it did this time around.
Each retailer has a different story of woe, but they all add up to investors taking a punt that things will get a lot worse before they get better in traditional retail land.