A lot riding on Christmas for retailers | David Taylor | Finance News Network

A lot riding on Christmas for retailers

by David Taylor

The past few weeks have seen a stream of Australian retailers front their shareholders (usually in the format of an annual general meeting) and tell them 'things are looking better'. But are they? The latest research would suggest not.

Companies like David Jones and Myer have specifically cited the unfolding debt crisis in Europe (and a struggling US economy) as the major reasons for falling consumer confidence - effectively preventing Australians from spending any substantial amount of money at the shops. Board executives have also pointed at rising unemployment as another factor hurting sales. Christmas though, is going to change all that...apparently.

David Jones, Myer, Metcash are just some of the big names claiming to be on target to meet their half year and full year profit forecasts. That's despite already recording hits to their bottom lines after a shaky mid-year sales performance.

According to independent research firm, Core Data, Australian consumers only expect to spend around $90 this Christmas, down from $120 last Christmas. That's a big chunk of money that will never make it to the check-out. Respondents to the group's surveys also indicated they would be cutting spending across the board, and possibly even putting off that family holiday.

I think we can expect more profit downgrades coming from the big retailers as the weeks and months progress. The earnings hit may come with a sting to it as well given the amount of heavy discounting that's already taking place. The logic is that lower prices lead to higher demand. But when those lower prices are met with a similar, if not slightly more favourable demand curve, it leads to a very uncomfortable position for management.

With the European debt crisis looking some way away from being resolved completely, and the Australian unemployment rate trending up, the Christmas punch that retailers are expecting is very unlikely to come to fruition this year.

David Taylor

Disclaimer

The content in my blog is non advisory, please do not interpret this as advice in any way shape or form. These are just my thoughts and nothing I say should be acted upon.