Retail weakness continues as Country Road sales fall, CommSec business sales indicator continues to drop

The disappointing results for the retail industry have continued, with fashion chain Country Road announcing that like-for-like sales have dropped by 10.9% over the past year, just days after David Jones announced lower profit expectations for the second half.

The result comes as the CommSec Business Sales Indicator has fallen once again, with most of the damage directed at the retail industry.

Forrester Research retail analyst Steven Noble says retailers are continuing to struggle against the changing attitudes of consumers who prefer online shopping, along with external factors such as ongoing sovereign debt problems in Europe.

“One issue is the economic cycle, so parts of the economy are still growing strongly and other parts are somewhat muted. And that’s clearly affecting consumer confidence.”

“But on top of that you just have the additional questions of long-term shifts in how consumers shop and how they prefer to buy. Clearly the shift is towards online purchasing and certainly some businesses haven’t exploited that area of their business.”

Country Road announced last night that comparable sales had fallen 10.9% over the past year, although overall group sales were up by 10.6%. In Australasia, sales are down 2%.

Profit is expected to be up by between 30-40%, although the company says “strong sales in South Africa, cost savings and margin improvement have contributed to the result”.

Country Road chief executive Howard Goldberg says the company is still operating in an “increasingly tough Australian retail environment”.

“The retail outlook remains challenging and our expectations on sales remain conservative. Country Road will continue its disciplined approach and focus on what it does best”.

The result comes days after David Jones announced lower profit expectations, triggering a sell-off in retail shares including Myer, Harvey Norman and JB Hi-Fi.

New data from CommSec bolsters the view that retail is undergoing a structural shift, with the Business Sales Indicator falling 0.3% in trend terms during June, following a 0.4% fall in May.

The indicator tracks the level of spending on Commonwealth Bank terminals.

Only four of the 20 recorded sectors recorded weaker spending, although retail stores were one of those and it recorded a 0.9% decline. The amusement and entertainment and clothing sectors recorded stronger growth, although CommSec says this is likely because of the colder weather.

Matt Comyn, executive general manager of local business banking, says the results are worrying.

“Although we haven’t seen any movement on the interest rate front, it’s clear that consumers continue to be rattled by both developments at home and abroad. The fact that we didn’t see an increase in purchases at retail stores during a heavy discount period is further proof of that.”

Although economist Craig James says the results aren’t all bad, and that short-term negative performance should improve, Noble says there are a number of external factors weighing in on shoppers’ consciousness that need to be addressed before conditions can improve.

“Whether or not Greece finds its way out of debt, and whether America can figure out its debt issues as well, all of these things have impacts on economic performance.”

“Any prediction about the future of retail needs to have those caveats, because I don’t think anyone really knows what’s happening in the Eurozone and other areas overseas.”