Create incentives to buy: Percentage down, price up: Which stocks benefit from the VAT reduction | message
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by Sven Parplies, Euro on Sunday
Eshopping again! After three months, those shops that do not sell essential products also opened in central London. Around 400 customers crowded in front of the door of the sporting goods giant Nike. Because only ten people were allowed in at the same time, the police had to keep things tidy outside.
In Germany, on the other hand, consumer enthusiasm is limited. The consumer climate improved slightly in June, but is still well below normal. This has consequences: over a third of non-food retailers see its existence threatened due to the massive drop in sales caused by the corona crisis, a survey by the German Trade Association (HDE) found.
The federal government’s stimulus package is expected to bring momentum. A key point is the reduction in VAT from 19 to 16 percentage points. The discount is to apply for six months, starting in July. In addition, parents collect a one-time fee of 300 euros for each child. The HDE is hoping for a “positive impulse”.
Economists are cautiously optimistic: “The reduction in value added tax is likely to cause purchases of durable consumer goods, such as cars or household appliances, to be preferred. Studies of temporary reductions in value added tax in the past suggest that the tax reduction may at best be passed on to consumers,” explains Clemens Fuest, President of the Munich Ifo Institute. Deutsche Bank calculates that a reduction in VAT plus a child bonus will increase household purchasing power by up to EUR 25 billion. Companies from cyclical sectors in particular would benefit from this.
How big the impact will depend heavily on what the companies make of it: “Three percent less doesn’t sound spectacular. Consumers are used to higher discounts. The expectation is that retailers will use the reduction for additional incentives. Those who have to get rid of large quantities of goods could, for example, advertise with discounts in the amount of the complete value added tax “, expects Volker Bosse, trading expert of the Baader Bank. For most DAX companies, the topic is only a minor issue because they do most of their business abroad. Adidas, for example, recently recorded only about six percent of its sales in Germany. China and the USA are much more important for the group and the share.
More is at stake for automakers: BMW generated 13 percent of sales in its home market last year, and Daimler 15 percent. Cars are also significantly more expensive than sneakers, so the tax discount is greater.
Industry expert Ferdinand Dudenhffer, director of the CAR Center, is nevertheless skeptical: “In times of high economic uncertainty, buyers are reluctant to spend on high-quality products. This reluctance can only be resolved if there are real incentives in the market.” Dudenhffers demand: For all products that cost more than 10,000 euros, completely suspend VAT! That would, however, tear a deep hole in the state coffers, since the levy in the past year resulted in 183 billion euros.
The tax impact on stocks from the small cap indices is likely to have the greatest impact because many of the companies there are more focused on the domestic market than the DAX giants. Ceconomy should have the greatest potential. The retail group is with its electrical stores Media Markt and Saturn a specialist in gaudy discounts. At the same time, Germany is an important item in the consolidated balance sheet with a sales share of around 50 percent.
The German share of the hardware store chain Hornbach is a little more than half. The marketing department worked very quickly there: the tax cut is already taken into account in the prices for June, i.e. one month in advance. The rush in the hardware stores has been great for weeks because do-it-yourselfers make their own home and garden in crisis. Hornbach boss Erich Harsch: “Everyone reacts differently. Three percent is relevant for some people and not for others.”
The big trend
Retail expert Bosse assumes that the effect of the VAT reduction will be overlaid by a long-term trend: “In many stores, the number of customers is still 50 percent below the pre-crisis level. We do not expect the old level to be reached again in the short term “Many consumers have gotten used to shopping on the Internet, which is why a strong online business is becoming increasingly important for companies.”
Dudenhffer, meanwhile, is already anticipating the next intervention by the federal government: “Since the VAT reduction does not give much impetus to consumers, we assume that at the end of the year a second, correct stimulus package will be necessary for Germany.”
The chain was one of the biggest losers in lockdown. Most of the stores of Media Markt and Saturn are now open again. The demand for electrical devices should increase due to the tax cut. The online business is also growing, accounting for just under a fifth of total sales. Analysts expect the business year to September to be in the red, then a recovery. The stock remains risky, but interesting as a trade.
Hardware stores are among the winners of the corona crisis. Because: If you spend a lot of time in your own apartment or in the garden, you want to have it there. Aggressive discount campaigns are part of the craft in the industry. Hornbach calculates that adjusted operating profit will decrease slightly in the business year ending in February. That should be a cautious forecast. The stock still has potential.
The Swedish investment company Kinnevik has reduced its stake in the Berlin fashion retailer by 4.4 percent, but remains a wholesaler at 21 percent. That put a strain on the course, but the story is intact: Zalando is a clear profiteer of the digitalization of the trade. For the current quarter, the Management Board expects a “significant” increase in sales and earnings, which is above market expectations. Long-term investment.
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