The 2012 Christmas retail trade is looming to be one of the most important for the Australian business community for a decade.
I believe that Harvey Norman chief Gerry Harvey is right in stating that a large number of Australian retailers, particularly appliance retailers, are hanging on by their fingernails hoping for a big Christmas to get them out of trouble (Harvey Norman to be 'last man standing', November 27).
But, of course, Gerry Harvey is playing a "take no prisoners" balance sheet game. By casting doubt over the solvency of his rivals Gerry knows he is increasing the nervousness of the suppliers and bankers to those rivals, so making them less likely to extend credit.
But most bankers and suppliers don’t need Gerry Harvey to tell them the truth – the bankers to the retailers and to many of the retail suppliers are already twitchy. This is a dangerous game. Both retailers and suppliers, plus their bankers, all hanging in the expectation and/or hope of a big infusion of Christmas cash from consumers.
That’s why last night’s weekly Morgan Consumer confidence report was like a weather forecast to a fisherman. And the weather looks good – Morgan’s consumer confidence rating rose 2.3 points to 115 points and confidence is 5.3 points higher than a year ago.
But, as the graph shows, confidence is running in a narrow band and is well below former times.
Morgan says that driving the rise was more confidence in people’s financial situations about the coming year and also economic conditions in Australia over the next five years.
I am seeing that underlying confidence that comes with lower interest rates seeping into real estate sales.
But Gerry Harvey warns that he needs more than consumer confidence – he wants hot weather to drive air conditioner sales. Clothing retailers would say they also need favourable summer weather.
Long-term weather forecasts have the accuracy of long-term economic predictions but, for what it is worth, on the east coast Brisbane looks reasonable but Sydney and Melbourne are on the coolish side.
But seriously, longer term, the Australian retailers who are going to survive and prosper are those that master the online challenge (Go Harvey Norman, where? August 7).
In my view Gerry Harvey should be spending more time exploring online trading strategies than playing in the Qantas game (I'm just a 'passive shareholder' in Qantas: Harvey, November 27). Nevertheless Gerry Harvey’s strength is his balance sheet.
If Harvey is right that in 2013 a number of major appliance retailers will collapse then Harvey Norman will gain market share. So as Gerry sees it Harvey Norman will win either way – either through a good Christmas sales or higher market share because of the failure of rivals.
A fine Christmas forecast for Gerry Harvey
Gerry Harvey is taking no prisoners as he casts doubt on rivals' balance sheets. Come Christmas, he'll win either through a rise in sales or the troubles of other retailers.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free