Tempered optimism – looking ahead to Christmas trading

Christmas, shopping, retailWith the end of the year fast approaching, Inside Retail asked retailers and analysts what they expect from the coming Christmas trading period.

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The Christmas trading period is undoubtedly the most important time in the retail calendar, and as the end of the year inches closer, market conditions are pointing towards a generally average silly season for retailers.

According to Westpac’s monthly consumer sentiment index, general confidence is on the uptick in October and is currently 3.6 points higher than this time last year. However, while consumers are feeling better about economic conditions, they feel worse about their finances, leaving them in what Commsec chief economist Craig James calls, “reasonable shape”.

“[Consumers] are feeling okay. There’s no rational exuberance there, they’re not shouting from the rooftops that everything is fine, but neither are they pessimistic about their finances or the economy,” he told Inside Retail Weekly.

Despite a relatively volatile year that’s included a close federal election, Britain’s decision to leave the EU and the ongoing US election, sentiment is expected to remain relatively stable in the lead up to 2017. James says that low prices and record high wealth levels are keeping customers engaged, but maintains that the US election result could disrupt expectations in the lead up to Christmas.

“The key factor globally is the US election, there’s a lot of potential for that to swing either way, so that’s a hurdle ahead in early November,” he said.

“Financial markets and investors want to see Hillary Clinton winning rather than Donald Trump because she’s a known quantity and Trump isn’t.”

Peter Birtles

Peter Birtles, CEO, Super Retail Group

“We know the dynamics of the retail industry are changing – customers have ever more information at their fingertips as to who will best meet their needs,  and they have more choices than ever before. Our job is to ensure we stand out from the crowd with an offer that inspires and engages at a broader level than product and price.”

– Peter Birtles, CEO, Super Retail Group.

 

While the US election will come to a head six weeks before Christmas, Deloitte’s head of retail, David White, believes the result is unlikely to have a significant impact in Australia either way.

“It’s got a way to play out just yet, we’ll have to wait and see what happens over in the US, but I personally don’t think it will have a huge impact here in Australia,” he said.

Deloitte’s impending annual Christmas report, which analyses expectations in the retail sector, is due out in early November and is likely to reflect a squeeze on margins, White says.

“There are some pretty decent looking expectations surrounding growth, particularly in top line revenue growth, probably less so on the margins side.

“Competition increasing plus cost of goods has been pretty tough on margins, with some of the hedging coming off lower rates last year,” he explained.

November rate cut unlikely to boost spending

Downward pressure on prices and persistently low inflation rates could, James says, tempt the RBA to cut rates again when they meet in November. However, it’s not clear that it would have any impact on consumer spending over Christmas.

“I don’t think it would impact spending. That’s the big question mark for the RBA; if you cut rates again would it do any good? It’s now a case of having all arms of policy working and driving the economy forward,” James explained.

“If you had a commitment by the government to be focused on spending particularly for infrastructure … we’d be seeing some momentum effects across the economy,” he added.

Australian Retail Association (ARA) executive director, Russell Zimmerman, has also pointed to government, telling IRW that consumer confidence, and ultimately growth, hedges on parliament’s ability to get the job done.

“We need to see good strong governance, we need to see governance that’s prepared to stand by decisions and make good decisions.

There doesn’t seem to be a lot of confidence within the government on any decision, and it doesn’t matter whether you’re talking about fiscal decisions or other decisions. There’s just not strong governance,” he said.

Zimmerman says that while sales growth is picking up, particularly in the clothing and footwear categories – which grew at 6.85 per cent year-on-year to August according to ABS data – deflationary pressure is hurting supermarket and department store sales.

Richard Umbers 2

Richard Umbers, CEO, Myer

“Christmas is a very competitive time in retail with customers looking for new and exciting products to delight their family and friends with on Christmas morning. We’ve really focused on taking the stress out of Christmas and providing our customers with an easy and enjoyable shopping experience. We think personalisation will continue to be a key trend for Christmas 2016 and we will be offering many new and exciting personalised products.”

– Richard Umbers, CEO, Myer.

 

ABS data has revealed that department store sales growth shrank by 2.39 per cent year-on-year in August, ahead of what White says will be a make or break holiday season for the segment.

“It will be interesting to see how the department stores fair over Christmas, given the amount of investment they’ve put into changing their business structure. It’s got a way to go, but it’s massively important for them this Christmas,” he said.

Across the wider retail spectrum, White predicts that the strong housing market in NSW and Melbourne will deliver household categories strong results, but warns that confidence is “patchy” as not all states experience similar conditions.

“NSW and Melbourne are pretty strong off the back of the housing market. WA and Queensland are less strong, probably driven by the economy there.”

Apparel has also emerged as an extremely competitive category, according to White, who added that customer service will play a defining role in the upcoming period as retailers continue to invest in point of sale services in an attempt to get a competitive edge.

“There’s been a reinvestment, not just in numbers, but also in terms of the training for people, so when consumers come into the store their much better armed with knowledge of products, facts and prices,” White explained.

Domino's boss Don Meij

Domino’s boss Don Meij

“We expect Domino’s will see an increase in online and instore orders over the Christmas retail period. To keep up with customer demand, we have added another 2500 jobs across our Australian stores. We want to prepare ourselves for the Christmas retail period and believe that hiring 2500 new team members will help to do just that.

– Don Meij, CEO, Domino’s Pizza.

 

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