Glimmer of hope for Australian Christmas sales
MELBOURNE (Reuters) - Lower mortgage payments, cheaper petrol and big discounts offer some hope of a Christmas shopping boost for Australia's retailers even as the grip of recession means it will be a tough festive season globally.
But, while supermarket chain operators Wesfarmers Ltd (WES.AX) and Woolworths Ltd (WOW.AX) should fare better than European retailers such as Marks & Spencer Group Plc (MKS.L), heavy discounting will eat into profits in the new year.
As the global economy shrinks, retailers from Europe to the United States have slashed prices to get customers to part with their cash. Marks & Spencer has held two special cut-price pre-Christmas sales, consultant Bain & Co has warned U.S. holiday season sales may fall for the first time in decades.
In contrast, Woolworths has said it expects Christmas trading to be underpinned by government stimulus, interest rate cuts and cash bonuses, while up-market department store retailer David Jones Ltd (DJS.AX) is confident people will keep shopping this month despite the tough conditions.
"It may not have happened yet, but when it comes into December people are still going to spend on their families," David Jones CEO Mark McInnes said last month.
There are reasons for his optimism:
Australia's economy is clinging to growth, while others are in recession; A$8 billion ($5 billion) worth of government handouts will this month land in the wallets of pensioners and low- to middle-income families; and, according to broker CommSec, the average household's fuel bill is A$70 a month lower than six months ago while big interest rate cuts have lopped almost A$600 off the monthly payment of an average A$300,000 mortgage.
Consumer spending accounts for 60 percent of economic output.
"Mortgage payments have dropped and petrol prices have dropped, so we have more to spend," said Charlotte Robinson, a working mum with teenage children.
"The sales are a bonus," she added, while waiting to see a Christmas display in the windows of a Myer department store in Melbourne.
CommSec Equities Economist Savanth Sebastian says anecdotal evidence suggests consumers are not finding it quite as tough as had been made out, noting a surprise 0.7 percent rise in October retail sales versus the previous month.
"Although Christmas gains won't be as big as last year, we are expecting 2.5 to 3 percent growth," said Richard Evans, executive director of the Australian Retailers Association.
The association said 2007 Christmas spending gains were more than 7 percent.
Wesfarmers and Woolworths both pushed up profits in 2007/08 and have said July-October sales were strong.
DELAYING THE PAIN? Continued...
