Retail spending, particularly on discretionary items, is being hit hard. Retailers are hearing widespread anecdotal evidence that customers are retreating to buying what they consider the basics. The effects of rising fuel prices coupled with increasing interest rates and, more importantly, a belief that things will get tougher, have combined to create this hiatus.
This seems to happen about once a decade.
In 1983 we had a drought in eastern Australia and Malcolm Fraser telling us that life wasn’t meant to be easy. People had money in the bank, but just would not spend. Bob Hawke won the election, made it rain, ended the drought and the mood swung. Customers started to spend and the economy turned.
In 1990s, interest rates rocketed up, belts were tightened and once again it got hard to sell a sofa.
In the noughties it’s not quite the same. We have another drought, but house prices went up, share portfolios seemed fat (albeit with the help of a margin loan) so confidence soared. People have bought the sofa — and a big tele — using a credit card or a 30 months interest free deal. Now they are faced with falling house prices and margin calls and the interest on the credit card is looking frightening. Add to this the back breaking size of credit card debt and the press continually telling us that times are very tough. The confidence boosting effect of rising house prices has been shattered. Dare Gallery has demonstrated that, once again, it’s not a good time to be selling sofas.
In the US, interest rates are falling, but consumer confidence has produced worse than expected March retail sales. Specialty retailers are being hardest hit, reporting double digit falls. Similar falls are being experienced in the UK.
Australian consumer spending is falling in real terms, as is consumer confidence – now at its lowest level for 15 years. Slowing retail spending is resulting in part-time and casual team members having their hours cut. David Jones Wollongong is reported to have cut permanent part time hours by 20%.
A real sleeper is food price inflation. It has the power to do immense damage to the economy and consumer confidence.
While inflation remains an issue, the Reserve Bank’s action appears to be starting to bite, but the price is to put the retail sector into the doldrums. The last interest rate rise has cut spending hard. When consumer confidence takes this sort of hit, turning it round becomes difficult. The International Monetary Fund believes the Australian economy is resilient and our economy will grow on the coat tails of India and China.
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However, until shoppers believe times are not really all that tough, they will keep wallets and purses closed. We need a trigger. Will it be the end of the drought? The first dip in interest rates? Retailers hope it’s not too far away.
This article originally appeared in the Brandish: Retail Intelligence newsletter