By Kymberly Martin
It has been a year of change and uncertainty for the retail sector with sales affected by consumer frugality. CBA senior economist, Michael Workman, talks to RetailBiz about where he sees the market heading in 2013 as well as the CE success stories.
While there has been a fairly significant shift in household behaviour it was difficult to know if lower interest rates will lead to a boost in consumer confidence and revive the economy, he said.
“I would like to say the outlook is improving because lower interest rates generally produce a period of firmer retail sales. What we see, as bank, is quite a strong increase in the amount of money in term deposits that is still rising on a year ago. There is also related activity with debt pay-down for credit cards with figures showing around 55 to 60 per cent are paid on the due date each month.”
Workman said this is a reaction to all the uncertainty people see around them and the biggest one lately is the fear of losing their job and a repeat of what happened in 2009 when the GFC was underway.
Should retailing pickup? “Yes. But the improvement in terms of growth in spending might be relatively modest. At this stage it does not look as if a consumer shift from uncertainty to more positive attitude is strong enough to make a marked difference in spending.”
He said other issues facing some retailers are internet related competition and much greater awareness by consumers of prices.
“It has become so easy for fingers to do the clicking to check prices and products. The other thing we have noticed is that consumers are quite willing to spend large amounts on some items like overseas travel and a new car. This is the third consecutive calendar year of over a million new vehicles sold which is quite extraordinary and not widely reported because it tends to run against the theme, particularly in the print media, that we live in constrained times.
“People are also embracing technology and the busiest stores in any area are technology related. People are all over that stuff. And when it comes to these products, Apple is at the top of the list and I would not use the word bargain here.
“This is a company that controls their wholesaling and retailing network with no discounting and consumers pay a premium for what they view as a premium product.
“And, there are a lot of competitors in the space at various prices. If you want proof that consumers don’t hold back, it’s new and suits their needs, Apple is it.”
Workman said there will be more stores closures which reflected the competitive nature of the market. “The currency has a big part to play. Any electronics store owner will have seen currency lowering the price of imported goods over the past couple of years and along with technology and productivity changes offshore has contributed to the shrinking price of goods like flat screen TVs. The retailer has to pass that reduction in price onto the customer and to keep the revenue position up needs to sell 10 per cent more volume to replace the 10 per cent loss of margin. The problem then is if you are not doing that you are making the same margin on declining revenue and costs for running a business don’t deflate.”
But this does not mean everyone goes under. “Some of the retail groups we speak to are very profitable, even in the clothing space. New retailers arrive, set up a new chain and make money when a lot of people are telling you the retail environment is dreadful. You need to have the right product at the right price,” he said.
This article first appeared on TTmag.com.au