Aussie retailers left out in the cold

Retail chains left behind as thrifty shoppers choose to sit out Australia boom
Aussie retailers left out in the cold
A sale display is seen at Pitt Street shopping mall on Dec 23, 2011 in Sydney, Australia.
By Bloomberg
Mon 02 Jan 2012 05:02 PM

Australia’s mining boom, which has powered the nation’s
economy to faster growth than the US, Europe and Japan, isn’t filtering down to
the country’s A$250bn ($252bn) retail sector. One reason: a national savings
rate near a quarter-century high.

Shares in electronics retailer JB Hi-Fi, clothing chain
Billabong International (BBG) and camping-gear seller Kathmandu Holdings have
all slumped by more than a quarter this month after the companies said
first-half earnings will miss forecasts. Myer Holdings, the nation’s biggest
department store chain, is shutting a store, reviewing other outlets and moving
forward clearance sales.

Households are cutting spending as prices for food and
utilities surge amid borrowing costs that were the highest in the developed
world until last month. Retailers are responding with discounts of as much as
80 percent in post-Christmas promotions to make up for disappointing December sales.

“This year has been a very tight Christmas,” said Reidell
Bragg, 34, an office administrator from Sydney browsing through the city’s
Queen Victoria Building, a Romanesque sandstone mall built in 1898. “I just can’t
afford it this year. Rent, bills, everything seems to have gone up.”

Prices for electricity, water and heating gas have risen 40
percent in the past three years, and food is 11 percent more expensive,
according to government data. That compares with an 8 percent gain in the
broader consumer price index that includes those components.

Instead of spending at stores, Australians since the 2008
financial crisis have been saving at a rate last seen in 1987. In the September
quarter, the ratio of net household savings to disposable income rose to about
10 percent from 9 percent in June. By contrast, the US personal savings rate was
3.5 percent in November, and hit a 19-year peak of 8.3 percent in May 2008.

The retail slump contrasts with a national economy buoyed by
demand from China and India for iron ore, coal and other commodities.
Australian gross domestic product is rising at 2.5 percent per year, compared
with 1.5 percent in the US, 1.4 percent in the euro region and 0.5 percent in
the UK. The unemployment rate is 5.3 percent, compared with 8.6 percent in the US

The effect was clear on Boxing Day, the day after Christmas.
Australian retailers typically use the public holiday to kick off sales. This
year the discounts are increasing.

Myer, which has 67 stores, moved forward its clearance sale
to Christmas Eve for members of its loyalty program, and is offering 40 percent
off Samsonite luggage. David Jones, the second-biggest chain, is dropping the
price of Royal Doulton glass sets by 60 percent. Victoria’s Basement, a Sydney
housewares store, has marked down products by 80 percent to clear out
inventory.

“It continues to be a very challenging trading environment,”
Myer chief executive officer Bernie Brookes said in an emailed statement. The
Melbourne-based group is experiencing “some good days and some tough days.”

Consumer confidence dropped to a four-month low in December
as concern mounted that Europe’s debt crisis would hurt the global economy,
according to a Westpac Banking Corp (WBC) and Melbourne Institute survey
released Dec 14. A quarter of respondents said the best use of savings was to
reduce debt.

 “I paid cash this
year because I don’t want to use the credit card,” said Luanne Bassan, a
46-year-old housewife from Sydney. “If I don’t have the cash, I just don’t want
it.”

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Adding to the challenge for retailers is the Australian
dollar, which this year reached the highest level against its US counterpart
since the end of exchange controls in 1983, making it cheaper to buy from
overseas-based websites.

Online shopping rose 37 percent in the 12 months ended
October and now accounts for about 8 percent of discretionary retail purchases,
Andrew McLennan, an analyst at Commonwealth Bank of Australia, said in a Dec. 8
report.

That trend will probably continue, putting particular
pressure on Billabong, Myer, David Jones and clothing retailers who compete
with international websites as “consumers are moving without them,” McLennan
said.

Woolworths, which is Australia’s biggest retailer and gets
three-quarters of sales from food and liquor, rose 2 percent while the index
has declined 1.5 percent.

Anna Martins, a 51-year-old office administrator, now only
goes to physical stores to buy clothes, after shopping for Christmas gift
hampers, electronics and sunglasses online.

“As the kids get older I like to give them something trendy,
and that’s where the online comes in,” she said. “The stuff is just there on
the page.”

Consumer pessimism about the world economy is blunting the
impact of two successive interest rate cuts that brought official borrowing
costs to 4.25 percent, according to Ben Jarman, an economist at JPMorgan Chase
& Co. While Australian rates are now at their lowest in 18 months, they
compare with 0.25 percent in the US and 0.5 percent in the U.K.

“You see the Reserve Bank of Australia cutting rates, but
that’s just validating the bad signal you’re getting from the news that,
globally, we’re on a quite uncertain footing,” he said. “The consumer, for
whatever reason, is re-evaluating the type of spending they’re doing.”

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