Why these ASX 300 retail shares could be immune to rising interest rates

Three woman pulling faces.Three woman pulling faces.

Some S&P/ASX 300 Index (ASX: XKO) retail shares facing an uncertain time. Households are facing painful inflation and elevated interest rates. This could be difficult for a number of retailers if households spend less.

Plenty of businesses saw excellent retail conditions during COVID as households had more savings and fewer other places where they could spend their discretionary money.

However, now that the RBA has ramped up the cash rate to lower economic demand in the Australian economy, retailers may see subdued conditions.

But, according to Australian Financial Review reporting on comments from Josh Clark, portfolio manager of QVG Capital’s long short fund, there are a few pockets of the retail industry that could keep performing.

Pockets of strength

Clark is cautious about housing-related retailers, asking the question “how many couches, cushions and coffee machines can you fit in your house?”. There are certainly a few ASX shares that specialise in those sorts of products.

But, while he believes that cost of living pressures make it “inevitable” that spending will slow, the economy is “only just starting to see evidence of consumer softness from early this year”.

Clark acknowledged that the portfolio he manages has minimal exposure to the consumer sector, but he does like the look of retailers who are focused on younger shoppers.

He pointed out that customers aged between 18 to 25 years old are “reaping the benefits of low unemployment without the headwinds of higher mortgage rates.”

There was one ASX share in particular that he called out with this younger demographic angle in mind – Lovisa Holdings Ltd (ASX: LOV).

What does Lovisa do?

Lovisa is an affordable jewellery retailer. It has a strong market presence in Australia, with 163 stores.

However, the company is rapidly growing in a number of different markets. In the first half of FY22, it had 81 USA stores and by the first half of FY23, it had 155 stores.

The business has only recently entered a number of regions that I think offer compelling growth potential including Italy, Poland, Hong Kong, Romania, Canada, Mexico and South America.

Some day, the business may decide to enter the huge population markets of mainland China and India.

In the first half of FY23, it saw net profit after tax (NPAT) grow by 31.9%. In the second half of FY23, it had opened 31 net new stores by the time it announced its HY23 result.

The ASX 300 retail share is expecting to deliver growth in “existing and new markets, and expect rollout momentum to increase going forward.”

Any other ASX retail share ideas?

While Lovisa was the only one that he named, there are a few other retailers that are aimed at younger shoppers that could perform better.

Shoe retailer Accent Group Ltd (ASX: AX1) has a number of brands that are targeted at younger shoppers such as Glue Store and Beyond Her.

Universal Store Holdings Ltd (ASX: UNI) owns three different brands that are “premium youth fashion brands” – Universal Store, THRILLS and Perfect Stranger.

So, it could be worthwhile to look more into these ASX retail shares.

The post Why these ASX 300 retail shares could be immune to rising interest rates appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has recommended Accent Group and Lovisa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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