The green shoots of a retail renaissance evident in Myer’s first-half sales performance have withered a little in the third quarter.
While Myer did post positive sales growth for the fourth consecutive quarter – which chief executive Bernie Brookes believes is probably the first time the department store group has done so since 2006 – the momentum of the first half has faded.
Third-quarter sales growth of 0.5 per cent (0.4 per cent on a comparable stores basis) fell back from the 2.1 per cent growth (1.7 per cent on a comparable stores basis) of the second quarter and the one per cent growth (0.8 per cent) of the first three months of the financial year.
The Myer disclosure coincided with the release of the Westpac and Melbourne Institute index of consumer sentiment for May, which showed a significant fall in the index and a balance of pessimism that Westpac’s chief economist Bill Evans attributed to a "sharply negative" response to the federal budget.
Retailers historically have blamed federal elections for weaker sales and while the formal campaign period has yet to start, the seemingly endless informal campaign that started when Julia Gillard announced the election date in January may also have had a dampening effect on confidence and spending.
Myer’s total sales were also impacted by the refurbishment of three of its larger stores in New South Wales, Queensland and South Australia and, while Brookes dismissed its influence, by the recently revealed inventory issues that led to last week’s downgrading of Target’s earnings for this year.
Brookes, while saying that Myer itself had a very clean inventory position, did refer to the excess inventory held by its suppliers and competitors and said he was stocking up for a massive sale to both take advantage of the supplier positions and counter the threat posed by a lot of excess stock overhanging the market.
Until the group’s rivals report, it won’t be clear whether the waning of Myer’s momentum is something unique to it or to department stores or part of a broader slowdown, again, at the big end of retailing.
Given that the downturn in consumer confidence coincided with the Reserve Bank’s latest rate cut – a cut immediately passed through to mortgage rates by the banks and one which took official rates to record low levels – the Myer numbers in the lead-up to that rate cut are slightly disconcerting. It, and the rate cuts that preceded it, may not be generating the activity the Reserve Bank has been anticipating.
The sector will also have to absorb the impacts of the sharp drop in the value of the Australian dollar in recent weeks, although Brookes said that Myer, which sources about 20 per cent of its product directly offshore, was hedged at levels above parity for the next 12 months.
He also pointed out that all retailers would be affected if the dollar were to fall further and remain lower, and that there might well be net gains to be had if Australian consumers faced higher costs to shop and travel offshore.
Not surprisingly, Brookes remains cautious about the outlook for retail trading, which he described as "patchy and inconsistent", yet positive about the underlying improvement in Myer’s customer service, its overall merchandise offer, its loyalty program and the development of its omni-channel strategy.