Retailers pin hopes on December sales

January 9, 2015

Max Mason

Business Reporter

Demand for clothing and footwear weakened in November

Demand for clothing and footwear weakened in November Photo: Getty Images

Soggy November sales figures have increased the scrutiny on Christmas trade for Australia’s struggling retail sector as lagging consumer confidence weighs on spending.

Official retail sales released on Friday for November came in softer than expected, inching up just 0.1 per cent over the month, but retailers hope that Christmas and Boxing Day sales will have boosted December numbers.

The latest figure followed a 0.4 per cent rise in October and a strong 1.3 per cent lift in September, which had benefited from the launch of the new iPhone.

Official retail sales released on Friday for November came in softer than expected.

Official retail sales released on Friday for November came in softer than expected.

The Australian Bureau of Statistics reveal that, seasonally adjusted, sales in food retailing, household goods, cafes, restaurants and takeaway food all rose. Demand for clothing and footwear dipped in November, while department stores sales were unchanged.

The recent slump in oil prices was unlikely to do enough to lift confidence and with it retail spending said Bank of America Merril Lynch economist Alex Joiner.

“We had held some hope that lower petrol prices would translate to people having more money in their pockets to spend on retail, but if sentiment is weak, it might be that they save that money instead of spending it,” Mr Joiner said.

The figures also showed that NSW and Victoria have performed quite strongly over the whole of 2014 and it was the mining states, such as WA and Queensland that have underperformed.

“That’s where you’re seeing all this impact from lower commodity prices, resources investment declining and weakness in the labour market.

“You’re seeing that two-speed economy in retail sales, but it’s not what we’re used to seeing, the mining states are actually very very weak in terms of these data,” Mr Joiner said.

With the unemployment rate inching higher and wages growth stalling it is hard to see a catalyst that will improve the mood of consumers and boost retail sales in the coming months, Mr Joiner said, however he does expect better numbers in December thanks to Christmas sales.

All eyes will now be on next month’s report, when December sales figures give an insight into how retailers fared in the Christmas and Boxing Day period.

Deutsche Bank analysts said discussions with unlisted retailers suggested that while lead-up to Christmas was relatively slow, the final days before the holidays and the last week of 2014 seemed to have been strong.

“The last week of December was a record week for a number of apparel retailers we spoke to, with some reporting December like-for-like growth in the high-single digits, notwithstanding sales that were flat at best in the first three weeks,” Deutsche Bank analyst Michael Simotas said.

He said discounting was slightly more intense than last year and online-only shops were particularly successful in pulling young consumers away from bricks-and-mortar stores, leaving some retailers with too much inventory.

Phones and tablets help boost sales in early December, but demand later eased, with large appliances stepping in to keep momentum up post Christmas, Mr Simotas said.

“Importantly, this momentum has continued in January and the hot weather in NSW has been helpful for sales of cooling products,” he said.

“High-value home appliances have been particularly strong, which we attribute to the housing market. Furniture and bedding sales have also been very healthy.”

Citi analyst Craig Woolford said he expects most retailers saw comparable sales growth of between 2 per cent and 3 per cent in December, however, it was their tight profit margins that were at risk.

“Retailers lost their nerve in the week before Christmas given slower sales, so they began discounting,” Mr Woolford said.

“That would equate to a 1 per cent to 3 per cent earnings risk for discretionary retailers.”

Mr Woolford said the plunge in oil prices help boost discretionary spending into the new year.

Moving into 2015, consumers want to spend, Mr Woolford said.

“The double-digit sales growth in [cafés and restaurants] is evidence of that,” he said.

“Also, petrol prices are now down 40¢ a litre from a year ago, equivalent to a 50 basis point interest rate cut,” he said, equating to savings of $6.8 billion.



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