There seems light at the end of the tunnel for retail
Deutsche Bank reported November’s performance, the best in more than a year, was well above the 2.5% year-on-year growth over the previous 12 months. A bank spokesman declared even a 0.2% dip in department store sales on a year-by-year basis could be considered good news in the light of their average 1.4% year-on-year fall in the previous six months.
Final national figures for the so-called post Christmas holiday period – contributed to by interesting and significant online sales – probably won’t be known until mid February.
Although consumer sentiment weakened in December to its lowest level in five months because of car industry woes and reports of other job losses, the Westpac- Melbourne Institute Sentiment Index, now at 105 points, indicates optimists are overriding pessimists.
Signs of Solidity
Justification for this optimism is a survey of 1,900 apparel, electronics and hardware stores by broker CIMB that shows owners are generally feeling positive despite margins being flat to problematic.
Myer’s Bernie Brookes says Christmas-New Year trading has been “solid” and Gerry Harvey concedes it was “okay”. Given that Harvey Norman’s profit last financial year at $142m was more than 60% below the 2008 result, Mr Harvey’s comment that things are currently “okay” seems highly significant. It suggests the light other retailers believe they see ahead, is not a figment of their imagination.
If there are no nasty surprises in Europe this year, if America’s economy continues to grows steadily, if China handles its transition from an export oriented economy to one increasingly concerned with domestic markets well, then Australia’s retailers could be doing a bit better than just okay come Christmas 2014.
However they face an assortment of economic pressures on margins. Having to pay staff up to $62 an hour on public holidays isn’t helpful. Jobs and job prospects in most sectors of the economy continue to be uncertain. It’s a situation likely to constrain retail growth this year, apparent at the start of the last quarter of 2013 when a level of consumer confidence was reached that hadn’t been seen for more than two years.
Although the Reserve Bank of Australia seems unlikely to raise interest rates in the immediate future, householders nonetheless are sitting on more cash than they have in a long time and still aren’t too keen to spend it. Thus, throughout 2014, many retailers, despite optimism, will face a somewhat less than rosy picture.
The Fuzzy SA Picture
So where does SA fit in?
ARA and Roy Morgan Research figures indicated that South Australians would spend an average of $614 in post Christmas sales, representing a $1.027bn contribution to a $15bn national total.
Rundle Mall Management Authority chief executive Ian Darbyshire says retailers have reported sale increases from “slightly up on last year” to “absolutely amazing”. Actual increases seem to be between 2% and 10%.
According to Deloitte Access Economics, SA will be impacted in the medium term by its “dollar dependent economy and exposure to manufacturing”, so that the State’s retail sales will be falling behind national averages
An Australian Bureau of Statistics report in the lead up to Christmas revealed SA as the second worst performer of the States, and related to its prospects is the discouraging fact that population gains remain well below national averages. Worse, it’s been estimated that in the past 12 years SA has suffered a net loss to interstate migration of 34,000.
The Online Impact
Australia’s online sales account for only about 6.5% of total sales. For many retailers, online sales may account for only about 1% to 2% of business. Nonetheless, because of the economy’s assortment of pressures on margins, it’s becoming increasingly clear that businesses developing the most effective internet operations have a valuable edge in a highly competitive domestic market that, if it’s growing at all, isn’t growing significantly.
This is why a highly efficient online presence is so important to many SA retailers.
Gerry Harvey’s comparative optimism is undoubtedly boosted by the lead up to Christmas, when he reported that Harvey Norman was doing $400,000 a day nationally in online business, double what it did for Christmas 2012.
Where an online system works well, many folk prefer to shop online rather than struggle through crowded shopping areas.
Myer’s management believes it can register 10% of its sales online within the next five years. They tripled last year, although by Christmas they still represented only about 1% of total sales. For Myer’s online aspirations to be realised, and assuming there’s no growth in sales overall, then that would still require compound annual online growth of about 60%.
This might well happen. Experts have described both the Myer and DJ web systems as far from top notch. The Myer system crashed over Christmas, and although DJ’s encompasses more than 2000 items for browsing across 108 pages, it still recorded a tenfold increase in 2012-13 – albeit from a presumably low base.
Future Challenges
NAB’s latest Online Retail Sales Index shows internet spending with local retailers growing at an annualised rate of 9.6%. Imagine what could be achieved with top-notch online services.
SA retail businesses, as much if not more than counterparts elsewhere in Australia, should be looking at ways to challenge overseas online retailers and global brands launching in Australia. Analysts expect in the next three years these will drain $2.5bn away from local fashion retailers alone.
Then there’s the threat from overseas web sites expected during this same period to attract $1.7bn in sales from Australians who currently spend about $40bn a year on fashion shopping.
A Perspective View
Australian sales to international entrants and overseas web sites represent only about 2% of the country’s currently available spending money. UBS retail analyst Ben Gilbert says international invaders are going to be fiercely fighting for a share in a comparatively small market. As the Australian dollar continues its predicted drop, competition will escalate.
Cursed as the scourge of the local sector, the grasp overseas or overseas-sponsored online retailers have on Australia’s domestic market is nevertheless expected by industry observers to slip rather than tighten. This, they say, will be brought about not only by the dollar’s decline, but also by increasing expertise of Australia’s web operators.
Mr Gilbert is therefore one of those expecting growth in international online sales to slow from 15% to 10% for department stores by 2016 and from 40% to 30% for fashion retailers.
The state of Australia’s retail sector might be somewhat less than joyous, but it’s looking better than it was 12 months ago – and certainly the signs and portends for it’s future could look a whole lot less attractive than they do.
