Australian Retail Sales Take a Plunge as Savings Rate Reaches Near 25-Year High
Australia’s mining boom, which has powered the nation’s economy to faster growth than the United States, Europe and Japan, isn’t filtering down to the country’s 250 billion Australia dollar ($252 billion) retail sector. One reason: a national savings rate near a quarter-century high.
Shares in electronics retailer JB Hi-Fi, clothing chain Billabong International and camping-gear seller Kathmandu Holdings have all slumped by more than a quarter this month after the companies said first-half earnings will miss forecasts. Myer Holdings, the nation’s biggest department store chain, is shutting a store, reviewing other outlets and moving forward clearance sales.
Households are cutting spending as prices for food and utilities surge amid borrowing costs that were the highest in the developed world until last month. Retailers are responding with discounts of as much as 80 percent in post-Christmas promotions to make up for disappointing December sales.
“This year has been a very tight Christmas,” said Reidell Bragg, 34, an office administrator from Sydney browsing through the city’s Queen Victoria Building, a Romanesque sandstone mall built in 1898. “I just can’t afford it this year. Rent, bills, everything seems to have gone up.”
Prices for electricity, water and heating gas have risen 40 percent in the past three years, and food is 11 percent more expensive, according to government data. That compares with an 8 percent gain in the broader consumer price index that includes those components.
Instead of spending at stores, Australians since the 2008 financial crisis have been saving at a rate last seen in 1987. In the September quarter, the ratio of net household savings to disposable income rose to about 10 percent from 9 percent in June. By contrast, the US personal savings rate was 3.5 percent in November and hit a 19-year peak of 8.3 percent in May 2008.
The retail slump contrasts with a national economy buoyed by demand from China and India for iron ore, coal and other commodities. Australian gross domestic product is rising at 2.5 percent per year, compared with 1.5 percent in the United States, 1.4 percent in the euro region and 0.5 percent in Britain. The unemployment rate is 5.3 percent, compared with 8.6 percent in the United States.
The effect was clear on Boxing Day, the day after Christmas. Australian retailers typically use the public holiday to kick off sales. This year the discounts are increasing.
Myer, which has 67 stores, moved forward its clearance sale to Christmas Eve for members of its loyalty program, and is offering 40 percent off Samsonite luggage. David Jones, the second-biggest chain, is dropping the price of Royal Doulton glass sets by 60 percent. Victoria’s Basement, a Sydney housewares store, has marked down products by 80 percent to clear out inventory.
“It continues to be a very challenging trading environment,” Myer chief executive officer Bernie Brookes said. The Melbourne-based group has “some good days and some tough days.”
Consumer confidence dropped to a four-month low in December as concern mounted that Europe’s debt crisis would hurt the global economy, according to a Westpac Banking Corporation and Melbourne Institute survey released on Dec. 14. A quarter of respondents said the best use of savings was to reduce debt.
Adding to the challenge for retailers is the Australian dollar, which this year reached the highest level against its US counterpart since the end of exchange controls in 1983, making it cheaper to buy from overseas-based websites.
Online shopping rose 37 percent in the 12 months ended October and now accounts for about 8 percent of discretionary retail purchases, Andrew McLennan, an analyst at Commonwealth Bank of Australia, said in a Dec. 8 report.
That trend will probably continue, putting particular pressure on Billabong, Myer, David Jones and clothing retailers who compete with international websites as “consumers are moving without them,” McLennan said.
Billabong has dropped 52 percent this month and JB Hi-Fi 28 percent, making them the worst performers in the benchmark S&P/ASX 200 index.
Kathmandu has dropped 29 percent, Myer 19 percent and David Jones 15 percent.
Consumer pessimism about the world economy is blunting the impact of two successive interest rate cuts that brought official borrowing costs to 4.25 percent, according to Ben Jarman, an economist at JPMorgan Chase.
“The consumer, for whatever reason, is re-evaluating the type of spending they’re doing,” he said.