Source : THE AGE NEWS
Think about department store Myer and billionaire Solomon Lew’s apparel brands (like Just Jeans and Portmans) as the canaries in the coal mine of Australian retail. Now picture the little yellow bird struggling to chirp as nervous consumers remain conservative with their cash.
It might explain why there were slim pickings under the Christmas tree a few weeks ago – why the expensive food processor mum expected was replaced by a handheld mixer from Kmart, why Dad got a set of pliers rather than the fancy electric drill he hoped for, or the reason the kids’ Lego box was smaller.
It was a Grinch period for Australian retailing.
Myer profits are challenged by the macroeconomic environment.Credit: Eamon Gallagher
Last week’s retail sales data suggested spending wasn’t as robust in the November Black Friday online sales as economists had predicted, but consumer spending on discretionary items still had a pulse – albeit a weakish one.
The numbers out from Myer and Premier’s apparel brands provide a clear message that consumers did their shopping at the online sales and abandoned the Christmas frenzy shopping.
Neither the Australian Bureau of Statistics numbers nor the sales and profit forecasts from Myer and Premier pick up whether there has been a return to shopping in January, but notably, neither business made any such prediction.
This shows no signs of improving until some consumer confidence returns – which is likely to come about when interest rates begin to fall.
We haven’t received the official ABS figures on retail spend in December, but Myer’s total sales performance for the first five months to the end of December were down 0.8 per cent while earnings before interest and tax have been slugged by 25 per cent compared to last year.
Premier’s apparel brands copped a similar hiding. Earnings before interest and tax for the first half to January 2025 are now expected to fall more than 30 per cent.
The response from investors demonstrated that this was far worse than they had expected. Myer shares slumped more than 18 per cent while Premier, which has been the sharemarket darling of the retail space for years, saw its stock plunge more than 15 per cent.
These equally diabolical trading updates from two major retail groups, Myer and Premier, come as the pair are slated to merge this year, so the joint earnings pain is therefore unlikely to jeopardise the deal. The shareholder meetings to approve the deal will take place in a couple of weeks.
Myer executive chair Olivia Wirth said the retail environment was challenging, driven by a tough macroeconomic environment. She said trading during the Black Friday event was strong but that consumers remained cautious and focused on value.
In other words, few consumers are prepared to pay full retail price in the current environment. They will spend only on sale items and the discounts need to be meaningful.
Westpac’s latest intelligence on shopping – which is derived from tracking credit and debit card activity – showed spending in the week up to Christmas experienced a steep drop followed by stronger activity during Boxing Day and new year sales.
The consumer shopping hesitancy that has eaten into Myer and Premier brands will be hitting others in discretionary retail land and it is likely to lead to analysts shaving their profit expectations for others in the sector.
And this is a situation that shows no signs of improving until some consumer confidence returns, which is likely to come about when interest rates begin to fall.
But while some economists revisited their expectations last week on interest rates and have brought forward the timing of the first cut, the broad consensus remains that we won’t see any movement from the Reserve Bank of Australia at its next meeting in February.
The next opportunity after February arrives on April 1. Consumers have been waiting a long time for falling inflation to feed into lower interest rates.
It looks like they want to see the evidence rather than the expectation before they return to the shops.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
