Myer predicts “good but not great” Christmas, but economist tip strong sales in 2010

Myer chief executive Bernie Brookes has said it is too early to predict how Christmas sales will perform, with many families shutting their wallets after three consecutive interest rate rises.

But Westpac says it expects the economic recovery to continue into the next year, with retail output expected to increase over the next 12 months.

Brookes said yesterday Christmas items such as wrapping paper, trees and hampers are still selling in line with expectations, but that “Christmas will be a good Christmas without being a great Christmas”.

“Christmas at a department store is 10 days before Christmas and then 10 days after and we do a couple of hundred million dollars in those days and that makes or breaks the first half result,” he told The Age, saying those results are too early to call due to recent interest rate hikes.

The comments come after David Jones chief executive Mark McInnes said earlier this week the company had seen a fall in demand after the Reserve Bank lifted interest rates by 25 basis points in November for a second consecutive month.

Retail analyst Rob Lake says Christmas sales are set to climb, but “they won’t climb by enough” due to the psychological effect a third consecutive interest rate rise has on consumer confidence.

“Retailers will be looking for a 6% increase on last year, and that’s really just par, and now it’s appearing that they aren’t going to get it.”

“That rate rise has a very powerful psychological effect, even if the increase isn’t actually that much. A quarter of a percent increase will add about 50c a day for the average mortgage.”

However, Lake says the interest rate rises won’t affect products classed as “frivolous luxuries… such as lipstick, confectionary, etc. These things are counter cyclical, and always do well when times are perceived to be tough.”

But despite the pessimistic outlook for Christmas sales, Westpac said it expects retail sales to climb over the next 12 months as the economy improves.

“Australian consumers are in an upbeat mood. Aggressive rate cuts, Government handouts, the economy’s out-performance and much better than expected labour market outcomes have catapulted sentiment from 16 year lows to boom levels,” economist Andrew Hassan said.

“Key barometers of discretionary spending are already picking up strongly. This is consistent with the typical consumer recovery which sees a partial rebound led by discretionary spending, especially delayed big ticket purchases. The second stage comes later and is driven by a return to employment growth lifting incomes and a broader recovery in spending. Overall, we expect growth in real consumer spending to rise to 3% in 2010.”

Hassan said retail sales growth is expected to rise from 2% during 2008 to 3.1% in 2009, with 3.6% expected in 2010.

“Other segments are expected to perform according to the broader pattern of recovering discretionary spending. Diverging trends are already apparent. Segments such as goods retail (which includes toys, CDs, DVDs, computer games, sporting equipment and cosmetics), and cafes and restaurants will outperform.”

“Segments such as clothing and department stores will be more middle-of-the-road although within these and within all segments there will be clear divergences in performance at the more detailed level.”