It’s a slow shopping burn for retailers in the approach to Christmas but the chains on the national collective consumer wallet may be loosening, if only a little.
Retailers have seen four years of suppressed spending with sales at less than half the average of the last decade.
They hope this Christmas will be the one. The turning point. The return of the smiling spender, shopping up big for the family.
Analysts see some signs suggesting sales will pick up but whether it will be in time for this Christmas is up to the management committee of Santa’s helpers. Calls to the North Pole haven’t been returned.
The lift in confidence with the election of the Coalition government has so far not produced much in the way of lasting benefits in the shopping world.
Something similar happened in March 1996 when the Coalition returned to government after 13 years. Business confidence spiked but this didn’t immediately translate into real spending and investment.
Approaching is the Melbourne Cup and there’s nothing like a big horse race to give an excuse to abandon the household budget and chuck money around. The hope is that this behaviour will continue.
Clues to what’s inside the tills in the high streets and department stores emerged last week as retail companies reported mixed signs to their shareholders at annual general meetings.
Pacific Brands (Bonds, Hush Puppies and King Gee) says retail conditions are far from ideal and Wesfarmers (Coles, Kmart, Bunnings, Target, Officeworks) says spending is subdued after the initial good feeling of the change in government.
Wesfarmers’ Richard Goyder doesn’t think conditions are better: “If anything I think business is generally finding it marginally tougher at the moment.”
Pacific Brands’ John Pollaers: “Retail conditions remain far from ideal and we expect continuing short-term challenges.”
Snowgum, with 26 stores and an outdoor wear retailer since 1926, has gone into administration. It competes against the likes of Kathmandu, whose online sales now represent more than half of sales growth.
However, Super Retail, with Supercheap Auto and Rebels Sports and other stores, says sales are improving and it plans to expand with new stores.
CEO Peter Birtles: “After a pleasing start to the year, trading slowed around the federal election but has returned to plan during October.”
The Reserve Bank believes conditions are right for a lift in the economy. Deputy governor Philip Lowe says “a lower value of the Australian dollar, an improvement in business confidence and low interest rates provide the basis for our outlook of a gradual lift in the non-mining economy over the next couple of years”.
Of course, a couple of years from now doesn’t help this year’s retail spending, which represents about one-fifth of economic activity in Australia.
There are, however, more immediate brighter wallet easing signs with consumers less likely to pay down debt (a widely adopted strategy post Global Financial Crisis) and the household savings rate has stopped rising.
Housing prices have started to rise, making those with a mortgage feel a little better off, and cheap interest rates have made it easier to service a home loan.
Share prices are up and even if you don’t have a direct stake, most have exposure through their superannuation funds. Not quite feeling wealthy, but certainly better off than a few years ago.
Shane Oliver, chief economist at AMP Capital, says these factors suggest that retail sales growth will pick up pace next year.
But a return to last decade’s pace of retail sales growth looks unlikely.
“No boom, but at least a let up in the gloom,” he says.
Another factor is that buying behaviours have changed over the last few years, says Peter Strong, a former bookshop owner and executive director of the Council of Small Business Australia.
“It used to be that Christmas shopping started in October and went through to December and the smiles on the faces got bigger in December,” he says.
“Christmas was about one-third of our sales. Shoppers were happy and it was a great time of year.
“Now the Christmas shopping doesn’t really get going until December and you can see that in the long faces of retailers.
“The other thing we’ve found is that people are buying in January during the sales. So, if people are spending, it’s in December and January.
“The other factor to watch for is online shopping. We find it amazing that because we’re local people hiring local people we have to pay an extra 10 per cent (GST) plus a lot of paperwork while overseas retailers pay nothing.”
Australians spent $14.2 billion on online retail, equivalent to 6.3 per cent of cash flowing through traditional bricks and mortar stores.
The recent strengthening of the Australian dollar against the US dollar in the lead-up to Christmas is another factor which will encourage spending on US sites – order now and get delivered before Christmas.
However, the latest numbers from the National Australia Bank’s latest online retail sales index show a slowing in growth but online ordering still has an envious 9.6 per cent annual growth curve.
Many big and small retailers are concentrating on making sure their online business works for digital natives and that they get a share of this growth.
For example, David Jones now has a transactional website with associated apps which work for mobile, both iPhone and Android, and tablets, plus customer reviews and ratings.
David Jones does click and collect — order it online and pick it up in store – and same day delivery in Sydney.
It’s a long way from the old David Jones website, a clunky online catalogue which wore out the clicking fingers of those trying to buy something.
Now it’s big in social media with 240,000 Facebook fans, 34,000 Twitter followers and a blog read by tens of thousands.
The old world retailer also has embraced email marketing, with a target of acquiring 2 million email addresses by the 2015 financial year.
The strategy is paying off. Online sales grew 711 per cent in the three months to June this year, according to David Jones’ latest results.
The big retailer’s September quarter sales to be released this Friday (November 1) are expected to show more rewards online but it is also investing in its stores.
The top line sales growth focus, while at the same time restructuring and digital building, includes adding 150 new national and international brands as department store exclusives.
David Jones also has made it easier for the world’s new big spenders and tourists – mainland China – to purchase by accepting the national Chinese debit and credit card UnionPay along with the more traditional Visa, Mastercard and American Express.
For David Jones, the Christmas offensive starts with digital a big component on November 4, with a campaign created in collaboration with New York-based artist, illustrator and film maker Quentin Jones.
For the market as a whole, watch for retail trade numbers for September to be released next week (November 4) and the latest Westpac Melbourne Institute Index of Consumer Sentiment.
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