Rates rise a concern for retail health this Christmas

Reserve Bank decision to increase rates by 0.25 per cent an indirect concern for retailers; casual employment tipped to be affected

The 25 basis point interest rate rise, announced by the Reserve Bank on December 1, may or may not have a major direct impact on the retail industry depending on who you listen to, but potential kick-on effects could be significant, according to industry observers.

The Australian Retailers Association claims the impact will be significant. Executive director, Russell Zimmerman, said a survey conducted by the association found 56 per cent of retailers saw a detrimental impact on their business from the past two interest rate hikes. The Christmas season was a "terrible" time for a third.

“If there is a downturn in business there will be a downturn in employment, such as the casuals that retailers often bring on around this time,” Zimmerman said.

“In turn, this will mean less money filtered back into retail. This interest rate hike could significantly knock the industry around.”

Zimmerman said people were still expected to spend this Christmas, but indications were that, with the interest rate hike being partially responsible, spending would be less.

“If somebody was preparing to spend $150 on Christmas, now they might just spend $100,” he said.

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With up to 30 per cent of a retailer’s revenue coming from the holiday season, a drop in spending would be significant, according to The Retail Doctor principal, Brian Walker. He didn’t expect the interest rate hike to have a direct impact, but like Zimmerman, he was concerned about unemployment rates at this time.

“With interest rates this low, I don’t think there’s statistical backing to say that there will be a downturn in consumer spending as a result of this particular thing,” Walker said.

“I predict it will be a good, but not great, Christmas. Interest rates will have a soft impact, but there’s also a social cocooning effect going on – which is benefitting family and home entertainment retailers, but affecting others.”

Harvey Norman general manager of computers and communications, Luke Naish, however, remained optimistic that the increased interest rate would have no substantial impact.

“We’re still in a far better position than we were a year ago,” Naish said. “There are concerns around unemployment, yes, but there’s been a big jump in the ASX, and there’s generally far more confidence in the market.

“If the interest rates were up another per cent, then yes, there would be an issue, but I think this is small enough that we’re still expecting a strong Christmas.”