No end in sight for Dick Smith and Harvey Norman retail woes: ARA
- 01 March, 2012 16:36
With the poor performance of the Dick Smith chain forcing Woolworths Group to post a net profit loss, and the half yearly profit before tax for retailer, Harvey Norman, being down 17.69 per cent over the previous year, one might be forgiven for thinking that all is not right in retail land.
While Australian Retailers Association (ARA) executive director, Russell Zimmerman, feels it is unfortunate that the two tech retailers have posted losses, he points out that it is no great secret that the retail sector as a whole has been struggling for some time.
“For those two retailers and many others in the same space, it’s particularly difficult because they are looking at products that have undergone the most major deflation,” he said.
“Twelve months ago you would buy a television for $1000, but now it would be between $600 and $700.”
The problem is if profit margin percentage for those products remains the same, the revenue for retailers would be down.
And with the cost of doing business continually rising, it also adds another level of complexity for retailers.
“It’s also a sector where you have to sell a lot more product, which involves more time and money being invested by the retailer,” Zimmerman said.
“They also have to contend with rent, insurance and wages going up.”
As an example of retailers attempting to adapt to this situation, Zimmerman highlights how JB Hi-Fi is looking towards importing their own products with their own brand name on it, possibly get a better price or margin on it.
While both retailers have been quick to blame a variety of factors affecting their profit margins, Zimmerman feels it is ultimately consumer habits dictating the current state of retail.
“We have consumers who are saving money and might already have two or three TVs in their house and don’t need any more, and they are buying products at a slower rate than they have in the past,” he said.
“The stretched consumer, who lives week to week, also has less disposable income as prices of commodities keep going up.”
Zimmerman also highlights that the unusual weather has had a detrimental effect on the electronics industry.
“We haven’t really had a hot summer, so that impacted retailer sales as well,” he said.
“The cool temperatures have not been conducive to people buying air conditioners over the summertime.”
For those expecting that it will get worse for IT tech retailers before it gets better, Zimmerman’s outlook is not as rosy as he does not foresee it getting better and only expects it to stagnate further.
As his reasoning, he points to businesses continuing to collapse and causing people to be concerned about their jobs, in turn making them tighten their belts and forcing them to only spend when they have to.
“If the economy was doing well, prices weren’t going up and people weren’t concerned about losing their job, then consumers would spend a bit more freely,” Zimmerman said.
“So I don’t think we’re going to see a major improvement as time goes on, but I hope it won’t get worse.”
Zimmerman does not see any easy ways out for IT tech retailers such as Dick Smith and Harvey Norman to recapture their former glory, as he feels that the retailing scene has already “changed a great deal.”
These retailers, especially Harvey Norman, are looking at the Internet for added revenue, and Zimmerman foresees “omni-channeling” as being an important part of their future growth.
He also feels that the retailers will be looking at stability from the government, as Australians have seen a fair amount of instability in the last few weeks with the leadership challenge.
With the budget coming back in May, Zimmerman personally would want the government to ensure that there are no further increases in taxes, as everyone is aware that there will be a Carbon Tax increase in July.
“We need to see from an industry perspective no more increases in taxes and instability in government,” he said.
“We also want people to be assured of their jobs so they can breathe a sigh of relief and get on with being consumers again.”