Alternative realities

While the mining sector might be justifiably worried about how big a bite the Government is going to take out of their profits, down at the other coal face – the shopping malls and retail strips around Australia – there are plenty of retailers justifiably worried about just making a profit.

The economy is sending some extraordinarily mixed signals right now. While consumer confidence, business confidence, employment data, inflation data and growth projections suggest that we are roaring back towards recovery, our retailer sector is starting to hurt very badly.

Today, Clive Peeters warned that sales in April fell sharply.

Yesterday, only hours after the ABS released data showing house prices grew by a whopping 20% in the last 12 months, furniture retailer Fantastic Furniture warned its sales were under pressure.

Late last week, the grand daddy of them all, Woolworths, also warned its sales had slowed and blamed the fact that the Government stimulus payments were finally fading out.

The retailers seem to be caught in a strange GFC hangover. The Government’s efforts to stimulate the economy were so successful last year that retailers are now finding that customers’ wallets are now well and truly empty of free money – and shoppers aren’t willing to spend their own.

But to me it seems that lagged problem is only one issue confronting the retail sector. A new (or perhaps renewed) sense of frugality seems to have hit consumers, forcing many businesses to discount heavily and for sustained periods of time.

Rising interest rates are only making customers more hesitant to spend, which is forcing retailers to extend their sales and discount offers.

It’s a bit of a vicious cycle – and the last thing many retailers would have expected in a recovering economy.

The message for companies that sell across a number of different sectors is to think very carefully about what speed your potential customers are running at.

Are they in the fast lane to recovery with the mining, construction and engineering and financial services sectors?

Or are they in the slow lane, struggling along with retail, property and, to a lesser extent, the services sector?

Your pitch to these groups needs to be carefully thought out.