Pacific Brands and The Reject Shop in a sweat over cool consumer confidence

Pacific Brands and The Reject Shop are the latest Australian retailers to slash their profit forecasts, with both attributing their woes to unseasonably warm weather and poor post-budget consumer confidence.

Bonds parent company Pacific Brands has dropped its earnings forecast to $90-93 million for the financial year, down from $105 million, while discount retailer The Reject Shop has gone from a $17-18 million prediction down to $14.5-15.5 million.

The two companies are the latest in a string of retailers to downgrade profit forecasts after online fashion retailer ASOS last week dropped its forecast from $117 million to $65 million, flagging currency rates and declines in consumer demand in markets such as Australia as the culprits.

Speaking to The Sydney Morning Herald, Darren Briggs, chief financial officer of The Reject Shop, was reluctant to single-out the federal budget for blame, despite citing budget week as the beginning of their troubles.

“I don’t want to make that direct correlation [with the federal budget], but what we do know is that in the second week of May, our sales compared to the prior corresponding week declined,” said Briggs.

“We know that that’s been the general consensus out there in the market, evidence from our head of buying would suggest that other retailers have been hit hard from about that second week [of May] onwards,” he said.

However, Pacific Brands boss John Pollaers was far less diplomatic in his explanation, telling the SMH post-budget consumer confidence blues were causing problems.

“Definitely it’s the budget and I was very surprised to see how quickly that hit,” he said.

Pollaers says “race to the bottom” price-cutting competitions among retailers have also had an impact on the wholesaler’s profits, as well as an unusually warm autumn.

Margy Osmond, chief executive of the Australian National Retailer’s Association, has identified bad weather as an industry-wide issue.

“From the point of view of the big discretionary spend retailers, they have got a store full of winter clothes, that nobody has wanted to buy up until the last week or so,” she told the SMH.

Myer last week postponed its mid-year stocktake sale on account of the warm weather and poor consumer sentiment, delaying the starting date until June 18.

However, Brian Walker, chief executive of the Retail Doctor Group, doubts the federal budget and the warmer days are the only issues affecting struggling retailers.

“There is no doubt that the first two or three weeks of May were extremely unseasonable, but that’s three weeks in six months,” Walker told SmartCompany.

“So I think we’ll find there are deeper issues within their portfolio of brands – there must be a far more substantial rationale,” he says.

Walker says the steady rise of online retail, as well as increased competition from newcomers, may be part of the problem.

“The Reject Shop has been very successful for a number of years, so I suspect some of the deeper issues for that business are the rise of online retailing and aggressive pricing from other discount chains like Aldi,” says Walker.

“Falling consumer confidence should benefit discount retailers like The Reject Shop. I think we’ll find it has more to do with competitive intensity, the rise of online shopping and their range of goods,” he says.