Retailers nervous about Christmas as Government stimulus fades

Retailers are facing a volatile Christmas season due to rising interest rates and a lack of fiscal stimulus from the Federal Government, industry leaders have warned.

The comments come despite a number of good results posted by retailers, as many executives expect consumers to pull back on spending as interest rates rise.

Country Road chief executive Ian Moir told the Australian Financial Review that despite the company recording a 10.8% rise in sales for the first 17 weeks of the financial year, trading is “tough at the moment”.

“We are more uncertain at the moment than we have been for some time,” he said. “I think there is a lot of discounting in the market place, there’s the threat of interest rates rising and the fall away of fiscal stimulus. It’s too early to tell about Christmas but I think trading is tough at the moment and very competitive. Consumers are reluctant to spend.”

Retail analyst Rob Lake says two consecutive interest rate rises before Christmas would make retailers nervous about their sales performance.

“Retailers have been speaking caution all year, saying that even when the stimulus dollars were around the god times wouldn’t last. They’re a pessimistic bunch.”

“What Moir is talking about, is that the risk is psychological. If we get interest rate hikes when the actual dollar impact isn’t that high, it convinces people to pull their belts in when they actually may not need to. If fuel prices and interest rates go up, then the retailers will be worried… it’s all about consumer perception and confidence.”

And despite good results for a number of other companies, industry leaders agree the Christmas period will be a nervous one for retailers.

Women’s clothing retailer Noni B announced a rise of 1.3% in same store sales for the first quarter, with chairman Lynn Wood saying the next few weeks are crucial in the company’s calendar.

“The second quarter leading up to Christmas will, of course, be critical to our first half result,” she said in a statement. “At this stage we expect our after-tax profit for the first half to be ahead of last years reported $2.5 million. We plan to pay an interim dividend on our 2010 results in April next year within the range of 50-75% of after-tax profit.”

Despite net profit falling 8.23% to $2.3 million for 2008-09, Wood said lower costs and “improved operational efficiency” should contribute to higher earnings over the current year.

Meanwhile, Super Cheap Auto also announced a positive start to the year with sales for the first 17 weeks rising 16.1% to $278.3 million, with shares rising 3.65% to $5.39. But managing director Peter Birtles also said activity is set to slow during Christmas.

“This level of like-for-like growth is exceptional…We anticipate a slowing of growth rates back to established long-term trends once we move into the Christmas period and the second half of the year, as the benefits of the government stimulus package and low interest rates wash out of the retail market.”

Discount furniture retailer Fantastic Holdings also flagged challenges to the retail industry over the next few months.

“With the winding down of government stimulus to consumers and the expectation of rising interest rates, there will be further challenges in the 2010 financial year,” managing director Julian Tertini said in a statement.

While the group announced a like-for-like sales increase of 4% during September, compared with September 2008, chairman George Bennett confirmed this year’s results would not be as strong due to a lack of fiscal stimulus.

“We do not expect gains of this magnitude for the full year however, as the performance in the second six months of the 2009 financial year was much stronger than the first half,” he said.