The damage to the retailing sector from the sluggish spending in the closing months of 2010 was underlined in a trio of reports this morning.

Retail sales data from the Australian Bureau of Statistics for December and the final three months of 2010 revealed the weakness of retail activity as consumers retreated and the strength of the Australian dollar added to the financial strains being felt by many companies.

The ABS said retail sales rose 0.2% in December (meaning the Christmas sales period was very weak). That was after a rise of 0.4% in November and the big 0.9% fall in October, which outweighed the two other months and produced the fall of 0.3% for the three months to December.

That was after the 0.7% rise in retail sales in the September quarter, meaning sales growth overall for the period July-December of about 0.4%, which is anemic.

The ABS said food retailing was flat in December (meaning the Christmas spirit was not upon us) and only other household goods retailers saw positive growth as department stores saw negative growth, along with the previous boom sector, cafes, takeaways and restaurants.

Department store chain Myer saw its shares fall 13% after it reversed previous guidance for a 5% to 10% profit rise and said it was now expecting a 5% fall in earnings for the 2010-2011 financial year.

But JB Hi-Fi, the discount consumer products chain, was applauded by investors who sent the shares higher after the retailer said profit was up 14% in the six months to December, despite sales growth dropping to just 8% for the half year from a 12% estimate in October and an expectation last August for growth of 17%.

Crucially JB Hi Fi didn’t cut its full year profit forecast increase, such as Myer was forced to do. That was despite JB Hi Fi telling the market that the first five weeks of 2011 were no better than the closing weeks of what was a tough half year period.

“Sales in the first five weeks of the second half were challenging as consumer spending remained subdued. Consolidated sales growth remained in line with the first half, with JB Hi-Fi Australia’s comparable store growth flat. Our Clive Anthonys and JB New Zealand stores experienced negative comparable store sales growth,” the company said.

Woolies has already halved its profit growth forecast for the six months to December and for 2011, Harvey Norman is looking at a 30%-plus fall in first-half profit and others, especially in women fashionwear (Noni-B and Specialty Fashion group) say profits will be down.

And yet this is not the result of the interest rate rise in November, because retail sales were positive for two months after that rise following the big fall in October.

It’s the continuing consumer conservatism and saving and the impact of the strong dollar, which is giving retailers (especially in consumer products) inventory losses as global prices for TVs and fall in US dollar terms, then in Australian dollar cost.

The impact of the floods and Cyclone in Queensland will add to that pressure this year.

The ABS warned that the Queensland component of the retail sales were impacted by the December floods and my be subject to future revisions.

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Peter Fray
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