Retailers tip $37 billion Christmas but rates set to hold shoppers back

The head of the Australian Retailers Association says the outlook for Christmas sales this year is disappointing due to the pressure on the industry caused by interest rate rises.

The comments come as forecaster Access Economics predicts retail sales growth will slow in the next 12 months due to the winding back of fiscal stimulus and a sluggish economic recovery.

Russell Zimmerman, chief executive of the Australian Retailers Association, says while the Christmas period is set to deliver sales growth from $36.95 billion in 2008 to $38.7 billion this year, growth will take a hit due to the latest interest rate rises.

“We’ve had patchy growth thus far, and we’re expecting a 4% increase going forward. I think to that extent this Christmas will be disappointing, and I think if interest rates hadn’t risen as high as they are now we’d see increases this year.”

Zimmerman publically condemned the decision by the Reserve Bank of Australia to lift the official interest rate to 3.75% last week, saying it would place unnecessary pressure on retailers.

“We did some surveying of retailers prior to that latest increase, and 56% of retailers surveyed said they felt the higher interest rate would have a major impact on their business.”

“So it’s not going to be a fantastic season. We’ve said it’s going to be a “good” Christmas, but not a “great” Christmas.”

But despite the increased pressure on retailers, Zimmerman says the expected total of $38.7 billion in sales is a satisfying step up from last year given the market’s conditions. Food retailing is expected to record $15.47 billion in sales, with department stores and apparel set to record $3.21 billion and $2.71 billion respectively.

However, he says businesses must do all they can to survive without dropping margins into a dangerously low territory.

“I think retailers are doing what they need to do. They are advertising, and promoting themselves. They are very savvy and generally speaking they will trade through this period as best as they are able to.”

“But to be honest I think retailers are taking some falls in discounts. I’ve seen up to 70% in some retailers, and I walked past a retailer on Monday who had 25% off everything in the store.”

But things may not be so good next year either, another expert has warned. Looking beyond the Christmas season, forecaster Access Economics has said retail sales will remain “modest” throughout 2010 as the economy continues to recover.

Director of research David Rumbens said in a statement while consumer confidence is high, it is likely over-estimated and the “underlying ability” of the Australian people to spend will be hit by future interest rates.

“The somewhat more sober picture for underlying income growth may rule the roost for retail spending in 2010. That is, retail sales growth may be very modest through 2010 as the Australian economy engages on a patchy recovery, before kicking up a gear in 2011 as the economic recovery gathers momentum.”

“By financial year, real (inflation-adjusted) retail sales are expected to grow by 2.1% in 2009-10 (with this in part boosted by the stimulus spending already been and gone), and 1.4% in 2010-11, with stronger growth of 3.1% returning in 2011-12.”