Retailers feel the pinch as sales slow

Retailers are feeling the pinch, laying off workers and discounting heavily to help defend themselves against lower-than-expected sales figures for the Christmas period.

The figures come as industry leaders have called on Fair Work Australia and the Reserve Bank to delay any rises in the minimum wage or interest rates, in order to help businesses survive.

New research from IPA Recruitment has revealed job listings in the retail sector are down 10%, with many firms laying off temporary workers hired during last year to help deal with higher activity levels caused by the Government’s stimulus packages.

Australian Retailers Association chief executive Russell Zimmerman said it was disappointing to see a 0.7% decline, especially after a rise of 1.4% in November.

“Retail trade for December 2009 confirmed retailers are still posting inconsistent growth and the RBA did the right thing by keeping interest rates on hold.”

Zimmerman also called on Fair Work Australia to hold off on any minimum wage rises when it meets next month, saying the body must be mindful of unnecessary wage bill pressures.

The figures show clothing, footwear and other personal accessory retailing dropped by 1.9%, with food retailing also falling by 1.3%. Household goods retailing fell by 0.3%, “other” retailing remained flat, while cafes, restaurants and takeaway food services was the only category to record an increase of 2.5%.

“The modest December year-on-year growth of 3% and the interesting picture painted by a full year of retail figures, which shows food may have saved the day for the retail sector in 2009, confirms retailers are not ready for significant wage bill rises,” Zimmerman said.

In comparison to the same figures from a year ago, food retailing increased by 5.3% while cafes, restaurants and takeaway spending grew by 16.8%. But other sectors weren’t as lucky, with household goods falling 4.1% and other retailing dropping 0.1%.

But the drop in sales has hit department stores the hardest, with turnover decreasing by a surprising 3.5% in December. Additionally, the sector posted a 3.2% decline in turnover for the year ending December 2009.

Australian National Retailers’ Association managing director Margy Osmond also said the Christmas period was disappointing, and businesses are struggling as a result.

“Christmas was not as strong as retailers hoped for and apart from the burst of activity on Boxing Day, the post Christmas sales were pretty patchy too. There was unprecedented discounting both before and after Christmas which has certainly put pressure on retailers’ margins.”

This has been confirmed by Myer chief executive Bernie Brookes, who said yesterday the department store giant would continue discounting even after the traditional post-Christmas sale period.

“We decided to invest in some more aggressive activity to drive the top line and we’ll do that again over the next six months,” he told the Sydney Morning Herald.

“Any extra discounting we’ve needed to do has been first targeted through Myer One (loyalty program)… and therefore is not as costly to us… I think the balance is investing as we get in front of the profit run rate to drive the top line.”

But despite comments from Brookes indicating the company is operating as per usual, sales figures tell a different story. Christmas figures were “negative” in December due to declines in the electrical goods and entertainment departments.

“They were the ones directly impacted by the stimulus. It would have been a very normal, if not good, Christmas had it not been for the one impact of the stimulus.”

The industry is also hoping the Reserve Bank of Australia will continue to hold off on interest rate rises over the next few months. There was a collective sigh of relief this week when the board held off on a fourth consecutive increase, but industry leaders are still calling for restraint.

“The drop in retail sales in the all-important month of December confirms how challenging the Christmas trading period was for retailers in a post-stimulus economy,” Osmand said.

“Last year interest rates were low and many people received cash handouts which lifted retail spending massively. This year retailers are relying on the fundamentals of the market and there are some pretty strong headwinds including the prospect of more rate rises and a discount orientated consumer.”