Wesfarmers tips retail boost

ANDREW BURRELL AND BLAIR SPEEDY
November 15, 2012
The Australian

RICHARD Goyder, chief executive of Perth-based Wesfarmers — the largest private sector employer in Australia — is optimistic that rising consumer confidence sparked by lower interest rates will produce a stronger Christmas trading period for the nation’s retailers.

Mr Goyder said the conglomerate’s retail division, including its Coles, Kmart and target businesses, was seeing “green shoots” of improved consumer sentiment and he had become slightly more optimistic about Christmas.

“As long as there are no disasters, if we can get a positive mindset it should be a half-decent Christmas,” he said yesterday after the group’s annual general meeting in Perth.

Mr Goyder said the recovery was most visible in Wesfarmers’ discretionary retail businesses, including Target and Kmart.

“That’s based around lower interest rates and, importantly, an expectation that that may continue,” he said.

“In other words, I think the commentary around interest rates in some ways is just as important as cutting it by 25 basis points or whatever the banks pass through.”

Mr Goyder said other factors lifting sentiment included the improving economic situations in Europe and the US as well as improved superannuation returns and better housing markets in some states.

“Flat is the new up,” he said.

Earlier, Mr Goyder said the pace of price deflation at Coles had moderated in the second quarter, but sales growth was continuing to outperform the market in the second quarter.

Mr Goyder told shareholders that food and liquor sales were growing strongly in volume terms.

“In the first quarter, both food and liquor’s comparative sales growth of 3.7 per cent and Coles Express’s comparative fuel volume growth of 0.4 per cent have outperformed their respective markets,” he said.

“Growth in these businesses has also continued into the second quarter of this year.”

Mr Goyder said while prices were continuing to fall, the pace of decline had slowed, offering some comfort to analysts who have questioned the impact of ongoing discounting on earnings margins.

“While Coles continues to experience price deflation through a combination of ongoing price investment and price deflation in fruit and vegetables, it is lower than that experienced in the first quarter of the year,” he said.

Coles has lowered food and liquor prices in 12 of the past 13 financial quarters, including a 3.2 per cent decline in the September quarter.

Arch rival Woolworths cut its prices by 2.8 per cent as the two supermarket giants continued to vie for the title of lowest-price supermarket.

Wesfarmers’ hardware division Bunnings, which is coming under pressure from the rollout of Woolworths’ Masters home improvement chain, was also cutting prices but was continuing to grow sales in volume terms and these conditions were expected to continue in coming months, he said.

Elsewhere in the company’s retail portfolio, Officeworks was growing its online sales at more than 10 per cent compared with last year and discount department store Target was continuing to turn around with transaction and customer numbers growing in the first and second quarters, as well as seeing a 25 per cent lift in online sales every month since January.

Kmart was also growing sales in transaction and volume terms, Mr Goyder said.

“We are hopeful for a positive trading outcome in the retail businesses during the important Christmas period,” he said.

However, Wesfarmers’ resource division was struggling with lower coal prices and the stronger dollar.