Australian retailers: Heed the lessons from Britain

When the big names of the global financial industry began to topple, the news was greeted with disbelief. But now, in Britain, the eye of the financial storm is moving from finance to retail, and Australian retailers should take heed.

When the big names of the global financial industry began to topple, the news was greeted with disbelief. But now, in Britain, the eye of the financial storm is moving from finance to retail, and Australian retailers should take heed.

The century old British retailer Woolworths Group plc, with 800 stories, is on the verge of collapse as financial administrators struggle to find a buyer.

It follows hard on the heels of the collapse of furniture chain MFI, which has 100 stores across the country and blamed the property market collapse for killing demand for large ticket items.

The severity of the fall in consumer sentiment was further highlighted by weak earnings reports on Thursday from home improvement retailer Kingfisher plc and DSG International plc, Britain’s largest consumer electronics retailer, reports the Sydney Morning Herald.

Retailers across the board have reported much tougher conditions in recent months as unemployment rises, property prices fall and the slide in the value of the British pound has raised the cost of buying goods from overseas. Uncharacteristically, leading department stores Marks & Spencer, Debenhams and Selfridges are all discounting in recent days to try and pull in shoppers to boost Christmas takings.

The Australian economy is certainly performing better than the UK’s. However by March/April next year Australian retailers will be hit as the falling Aussie dollar leads to a surge in the price of imported goods.

Founder of online retailer Zazz.com.au, Fred Milgrom, sounded the warning on SmartCompany last month. He says Australian retailers had been caught with too much stock due to lower consumer spending, and are desperate to clear their warehouses.

“So we’re going to see a lot of sales coming up. The pre-Christmas sales, the Christmas sales, the Boxing Day sales, the New Years Day sales and so on, in a desperate attempt to try and move stock,” he says.

But he also warned that next year when this stock has moved out of the system, there’s going to be a major problem because the dollar has dropped significantly “and there’s going to be shock because prices are going to be up 20%, 25% and 30% on what they are now at a time when retailers will be paying off their credit cards”.

With unemployment also set to rise and property prices expected to fall further, retailers need to put in place clever strategies for the last half of what is shaping up to be a very difficult financial year.

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