Despite the Australian Bureau of Statistics’ reported slow down in retail spending in July, retailers expect there’ll be a surge over the Christmas period.
According to a Dun & Bradstreet’s report, retailers’ sales expectation for the December quarter has climbed to a 12 year high and profit expectations are now out of negative territory.
The retail sector’s sales expectations index is 12 points above the national average, a result that comes off the back of 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 however, it coincides with widespread discount campaigns. Price reductions are expected to continue over the Christmas period, with retailers’ expectations for selling prices falling to the lowest point in seven years.
According to Dun & Bradstreet’s CEO, Gareth Jones, a solid performance in the June quarter has provided a welcome uplift in sentiment for a sector that’s faced a prolonged period of deflated spending.
“The retail sector is being challenged by conservative consumer behaviour, which is forcing discounting and putting pressure on company margins,” he said.
“The second quarter improvement is undoubtedly a welcome respite and it has raised hopes for a solid performance in the lead up to Christmas. However it is clear retailers have hinged their hopes on a continuation of discount campaigns, with executives indicating they will lower prices in the December quarter.”
To meet the expected Christmas demand businesses are planning to replenish inventories, with the index rising from -8 to 33. Retailers are also expecting to increase staff numbers, with the employment index up seven points to six.
Retailers’ expectations for the coming holiday season are substantially more upbeat than the same period last year, when the sales and profit expectations indices were at a conservative 5 and -1 respectively. This compares to a current index of 50 for sales and 11 for profits.
The improvement in retail sector sentiment comes as fewer firms express concern about the exchange rate. The number of retail executives concerned about the impact of the dollar on operations fell from 49 per cent to just over one third (35%) during August. Conversely, the number of firms expecting no impact from the dollar rose 14 percentage points to 41 per cent. The shift reflects recent downward movements in the dollar, which have brought the currency closer to parity.
While retailers recorded the most noticeable improvement in the outlook for the coming quarter, optimism also rose in other sectors. Sales expectations across all industries surveyed climbed to an index of 38 and profits to an index 17. Plans for employment, inventories and capital investment also rose, with the indices reaching six, 26 and ten respectively. The only index which fell was selling prices, dropping five points to nine.
“It’s promising to see an improvement in the outlook across the board and particularly in sectors that have felt the impact of an elevated exchange rate. Solid expectations in key areas, including profits and employment, are a positive sign as we head towards the end of the year and an encouraging shift from an extended period of pessimism,” Jones said.
“However, the uptick in capital investment expectations was slight, indicating that a significant majority of firms remain focused on the short-term.”