Retailers set store by festive season as July sales fall to two-year lows

Blair Speedy
September 04, 2012
The Australian

RETAILERS are hopeful of improved trading conditions in the lead-up to Christmas after experiencing a disappointing sales performance in July as the industry failed to benefit from household assistance payments.

Sales at department stores fell by 10.2 per cent in July compared to June, their biggest monthly fall since 2005 and a sharp reversal from the 3.7 per cent gain seen in June, which had kindled a brief spark of hope that the sector may finally be turning around.

The figures dragged overall retail sales 0.8 per cent lower for July, their worst monthly result in more than two years.

They came yesterday as further signs of a slowing economy emerged, with figures showing company profits fell for the past three quarters.

Ten of the 15 industries in the Australian Bureau of Statistics business indicators surveyed showed falls in profits, including mining, manufacturing and retail.

Gross operating profits adjusted for inflation and seasonal factors fell 0.7 per cent in the June quarter, the ABS said. They were down by 3.7 per cent in the March quarter and 6.3 per cent in the December quarter of calendar 2011.

The poor retail figures, which came after a weak June 30 year profit season, sent shares in Myer, David Jones and Harvey Norman down slightly yesterday.

But Gerry Harvey, executive chairman at the furniture and electrical giant Harvey Norman, which last week reported a 32 per cent slump in annual profit, said it was too early to make a definitive call on the health of the sector.

“I’m going to reserve my opinion until we see September’s figures . . . but there was a spike in June before it fell away in July, that’s what everyone is telling us, and that’s our experience as well,” Mr Harvey said.

The fluctuation is expected to have hit the discount department stores harder than more upmarket players such as Myer and David Jones, as the income-tested assistance payments were targeted to low-income households more likely to shop at Big W, Target and Kmart.

The July data came as a survey by credit agency Dun & Bradstreet, taken before the release of the ABS figures, showed sales expectations for the December quarter were at their highest level in 12 years.

Dun & Bradstreet chief executive Gareth Jones said the company’s retail sector sales expectations index was 12 points above the national average following a stronger-than-expected June quarter. “The June quarter sales result, which was significantly better than the prior quarter, has provided a boost to industry confidence,” Mr Jones said.

“Retailers expectations for the coming holiday season are substantially more upbeat than the same period last year,” he added, noting that the sales expectation index was now 10 times higher than 12 months ago.

Mr Harvey said he was among the merchants expecting a bumper festive season.

“I didn’t last year — it was the first year I thought we wouldn’t have a good Christmas, and we didn’t — but this year I think we will. I’ve got this gut feeling it will happen,” Mr Harvey said.

“It’s just because of what I’m observing day to day in the market — with all the bad news we get every day, I still think we’re going to have a good Christmas.

I’m glad other people are saying so as well. That makes me feel a bit better . . . but economists and financial journalists would probably say I’ve got no reason to think that way because there’s nothing to make you feel optimistic.”

One senior retail executive said that, rather than saving the payment for their power bills, shoppers appeared to have splurged with household assistance payments that began to be paid in May and June.

“They’ve got the cheque in their hand and thought ‘you beauty’ and gone out and spent it, but then they’ve found out their electricity bill has gone up significantly and they’ve panicked,” the executive said.