Confidence issue affecting retail sales

RICK Hart has just opened a new high-end homewares showroom in Osborne Park, David Jones is planning more department stores in Perth, and the west end of the city is being filled with luxury stores such as Bally and Tiffany & Co.

These developments seem to reinforce the notion that Western Australia’s economy is powering ahead.

Why, then, have two Rick Hart-branded stores just closed, and why is Retail Traders’ Association of WA director Wayne Spencer bemoaning the number of shops now having to lay off staff or close for good in the face of interest rate hikes and wage increases.

“[Retailers] can’t pass the higher costs onto their customers because they are relying on heavily reduced prices to keep the people they have coming through their doors,” Mr Spencer said.

This pessimistic view is borne out by figures from the Australian Bureau of Statistics that show growth in retail sales in WA have been declining since Christmas.

WA’s retail growth rate in January and February was 0.7 per cent and 0.6 per cent respectively.

There was growth of 0.5 per cent and 0.2 per cent in March and April respectively. In May, sales actually dropped by 0.3 per cent.

New South Wales bucked three months of retail decline to post a jump of 0.9 per cent in May.

Mr Spencer said the recent sluggish performance of WA’s retail sector was a sign that economic recovery was uncertain.

“While some sections of the economy are bracing for a return to strong growth, sadly, retailers are yet to see the light at the end of the tunnel,” he said.

Chamber of Commerce and Industry WA chief economist John Nicolaou said the slump in retail sales was a result of decreased confidence across all sectors of the economy.

“The year did start off positively; optimism was high and conditions were much more favourable, which was reflected in [March] quarter results,” he said.

“Since then, uncertainty has crept back and both business and consumer confidence has come back from the record highs of March 2010.

“This is partly a result of news from abroad, particularly in Europe, where there is concern about debt and its impact on our trading partners.”

Locally, the causes were increased costs, increased wages and a jump in other input costs such as electricity, he said.

Mr Nicolaou expected growth in wider economy for the year ahead, driven by mining and construction, with increased employment, higher population growth and subsequent wage rises spurring people’s desire to shop.

CommSec economist Savanth Sebastian said the ABS statistics highlighted the difficult landscape faced by retailers.

“Unemployment continues to slide, confidence levels are healthy, yet retail sales remains lacklustre,” he said.

“If anything, the latest result confirms that retailers will need to discount further in coming months in an attempt to entice consumers.”

Mr Sebastian said the price-cutting ability of department stores put them in a better position to withstand the downturn, evident in the extended length of stocktake sales at the bigger stores.

Department store Myer posted flat figures for the third quarter. Sales in the three months ending April 24 were up 0.3 per cent across Australia compared with the corresponding quarter of 2009, however the retailer noted particularly strong trade in WA and announced the opening of a seventh store in the state at Lakeside Joondalup shopping centre.

Myer’s direct competition, David Jones, has also signaled expansion, announcing the option to open a new store at Westfield Innaloo. Recently, David Jones said it planned a new store in Whitfords.

The WA expansion comes at the expense of a planned store in Fountain Gate in Victoria.

David Jones chief executive Paul Zahra said the company had “locked-in a dominant presence in one of the fastest growing and high-value markets in Australia”.

David Jones reported a 1.4 per cent Australian sales increase in the March quarter, saying trade was “challenging”.

Wefarmers, which operates Coles, Bunnings, Officeworks, Target and Kmart, had mixed results across its retail portfolio in the March quarter.

Coles’ food and liquor sales were up 3.9 per cent across Australia. Bunnings and Officeworks were up more than 7 per cent, while Target experienced no growth.

Mr Hart’s new kitchen, laundry and cooking appliance store, Kitchen HQ, in Osborne Park opened as the final assets of his former electrical appliances company and its bankrupt Melbourne parent company were sold to Harvey Norman on Thursday.

Mr Hart said he was unfazed by the recent downturn in WA’s retail market.

“It’s a little bit soft at the moment by all reports but I’m not concerned,” he said.

He plans to open up to three more Kitchen HQ stores in the next couple of years, saying WA was in a pretty good state to support expansion.

At the smaller end of the market, independent Perth book retailer Boffins Bookshop has experienced slower trade since Christmas, much lower than 2009 levels.

“There seems to be a lot less book traffic, certainly in our area, and people also seem to be buying less,” Boffins co-owner Bill Liddelow said.

“In the book industry, that seems to be pretty true in other states as well.”

He said the global financial crisis had also hit the bookstore.

“A lot, probably half, of our books are sourced from the US and UK and their publishing programs have cut back more than Australia’s, because they got hit with the full force [of the GFC] and that’s certainly affected our stock,” Mr Liddelow said.

He said new, interesting books coming on the market could push sales leading up to the festive season.

“That will garner people’s interest.”