Christmas is traditionally the pot of gold at the end of the rainbow for retailers, but ‘double-edged’ sword economic conditions are shaping up this year to be less lucrative than ideal.
The 'sword' comes from the dollar, which has recently soared to hover around parity on exchange with the US. While this is good for consumer confidence and the import of goods, the benefit is offset by reduced profit per sale for individual goods (assuming the retailer doesn’t increase its margins), and additional competition for retailers as consumers look to overseas e-retail stores for bargins.
It also doesn’t help that retailers might not be able to pass on the savings on the dollar just yet.
Simms International managing director, Danny Moore, claimed the retail climate, although an improvement on last year, was still quiet as retail shops had yet to adjust their prices downwards.
“People seem to be waiting,” Moore said. “I don’t think it’s an issue with discretionary spend, though, and the vendors are very bullish about this Christmas as there are plenty of new technologies to take advantage of. It’s the first Christmas for the iPad for instance. We’re just not seeing it yet."
There was still a level of stock involved in the channel that needs to be shifted first, before the dollar savings can be passed on to consumers, Moore said, but until prices dropped, consumers might be holding off spending in a catch-22 that only benefits offshore e-retailers.
“There’s no doubt that some sales have gone to offshore retailers,” Moore said. “If you look at data from Australia Post, the number of incoming packages has significantly jumped.
“That said I don’t think it’s going to be enough to hurt retailers overall.”
Anyware Computer Accessories managing director, Garrison Huang, also has not yet seen the Christmas ‘uptick’ for consumer spending, however he wasn’t expecting it to occur until mid-November.
“We haven’t seen great signs of growth in the IT sector yet,” Huang said. “We have some products ready so hopefully we’ll catch the Christmas spending.”
Anyware has yet to adjust pricing to account for the dollar, although it will do so in early November – at the same time building a substantial marketing push that will include a full-colour catalogue for the first time in years, Huang said.
JB Hi-Fi CEO, Terry Smart, agreed that offshore e-retailers would eat into some of the smaller sales, such as software or games, but a low unemployment rate and the bigger ticket items such as AV equipment that consumers won’t typically purchase online left the retailer confident about Christmas.
“Christmas is that unique time of year where people will still be gifting,” Smart said. “There are signs of continued growth into December. That said, it remains a challenging market for retail, and any interest rate hikes would be disappointing and lead to less consumer confidence.”
The RBA will meet once more before Christmas. A rate increase on November 2 had been considered unlikely by analysts when Bloomberg reported a lower-than-expected consumer price index increase of 0.7 per cent from the second quarter.
Consumer prices advanced just 2.8 per cent in the third quarter from a year lower, less than the 3.1 per cent expectation. This puts the inflation rate at a level analysts expected the RBA to be happy with, however despite this the interests rates were increased to 4.75 per cent.
Australian Retailer’s Association executive director, Russel Zimmerman, said consumer confidence was already low enough to be having a negative impact in some retail sectors.
“Up to 45 per cent of consumers that responded to our consumer confidence report that we ran in August said they were withholding spending on everything from luxury goods to footwear and whitegoods,” Zimmerman said.
“Things are just not as good as we would like them to be.”
Earlier in October, fellow retail representative, United Retail Federation national president, Scott Driscoll, claimed any interest rate hikes before Christmas would be ‘terrorist timing’ for retailers.
“The RBA has made this mistake before,” Driscoll said. “It drove up interest rates just before we entered the global financial crisis, which forced it to make some dramatic changes later, and it also hiked interest rates last year in December, which is terrorist timing for retail.
“The RBA shouldn’t meet in December. It doesn’t in January, and all it does is create a false sense of doom in consumer’s minds.”
However, while the retailers struggle, this Christmas will be a good one for those consumers that are gift shopping.
Simms International’s Danny Moore said the timing of price adjustments and competitive pressures could well lead to some major discounting in the coming months.
“I think we’ll see a frenzy of sales, deals, bundles and pricing slashes,” he said. “The more depressed the market, the more aggressive retailers will move coming in to December.”