Gloomy sales outlook dampening investment plans: Report

Business angst looks set to continue, with the latest Dun & Bradstreet report showing 27% of local businesses anticipate declined sales in the coming months, while 30% expect lower profits, putting the brakes on investment in staff and equipment.

Dun & Bradstreet’s latest National Business Expectations Survey includes the responses of 1,200 business owners and senior executives, representing major industry sectors across Australia.

According to the survey, sales expectations are now at their lowest point in 12 quarters, following a fall of 13 index points against June quarter figures.

A similar decline in profit expectations has placed the index in negative territory (-5 points). Dismal sales and profit expectations are also flowing through to other key business indicators.

For example, one in five firms (21%) have indicated they will not replenish inventory levels in the coming quarter, while 15% have indicated they will need to discount in order to move stock.

Businesses are also revising plans for employment – the number of businesses expecting to increase staff numbers fell three index points to an index of just two.

Danielle Woods, Dun & Bradstreet general manager of corporate affairs, says Australian businesses are bracing themselves for a difficult September quarter.

“The subdued outlook reveals the extent of uncertainty among Australian executives,” she says.

“Continued global economic turbulence and slowing local demand [are] hitting the confidence and performance of local businesses.”

“In turn, this lack of confidence and subdued performance is creating a knock-on effect – businesses are halting investment plans.”

Not surprisingly, retailers are among the most pessimistic businesses – profit expectations among retail firms are down 17 points to an index of -18.

Meanwhile, 64% of retail executives anticipate demand will slow in the year ahead.

This issue is also impacting retailers’ intentions in other areas, as an increased number of firms prepare to reduce inventory levels, and expectations for new staff enter negative territory (-2).

Concern over online competition is further dampening retail sentiment, with 58% of retail executives apprehensive about competition from online sellers, up 15% since last month.

Likewise, more firms will monitor movements in the official cash rate.

Half of retail executives expect interest rates to have the biggest influence on operations in the quarter ahead, which is an increase of 9% since April.

“Conservative consumer behaviour is placing significant downward pressure on the retail sector… Firms are expecting the start to the new financial year will be challenging,” Woods says.

“The number of consumers tapping into online shopping continues to grow as increasingly budget-conscious consumers compare prices and purchase from overseas when prices are lower.”

“The retail sector… is expecting interest rates to play a critical role in their performance over the coming months, with hopes of further reductions in the official cash rate to stimulate spending.”

The Reserve Bank will decide today whether to reduce the official cash rate.

However, retailers could be in luck, with Westpac chief economist Bill Evans saying the RBA could push interest rates as low as 2.75%.

Evans has predicted rates will be cut by 25 basis points at today’s meeting, followed by moves in July and August, and in the final months of the year.