Medicare levy rise will hit Myer sales, says CEO
Myer has warned that the proposed increase to the Medicare levy will hurt sales at its stores, since it will affect its direct customer base.
The federal government has confirmed it planned to increase the Medicare levy by half a percentage point, which will cost the average household at least $350 a year. The levy is to part-fund the proposed national disability insurance scheme.
The estimated $350 for the Medicare levy increase "is something they would have spent with us", Myer chief executive Bernie Brookes told a Macquarie Securities conference on Wednesday.
The proposed levy "is not good for our customers and may have an impact", Mr Brookes said.
The indicated cost of $350 a year is for a wage earner on an "average" income of about $72,000 a year, although the financial impost would be greater for wage earners in higher wage brackets, which could affect sales at department stores in particular, since their patrons typically have higher incomes.
Mr Brookes told fund managers on Wednesday that retail sales had been less volatile this year than they were last year, when equity markets would fall by 120 points in a day.
Even so, it has been difficult to forecast sales since school holidays had been earlier this year, as had Easter.
Myer had continued to enjoy good sales growth from its expanding suite of in-house, exclusive brands, he said, which was helping to offset continuing cost pressures.
Even though the company was planning to open new stores over the next five years, this would not result in any net increase in total retail space, since Myer intended to continue to reduce floor space at existing outlets, which would help to reduce its total rental bill, while also helping to boost sales per square metre of retail space along with productivity, Mr Brookes said.
Since much of the floor space to be surrendered at existing outlets would be on higher floors, and often be difficult for the landlord to find alternative uses for, this would not result in a straight-line reduction in rental costs at the various outlets, Mr Brookes said.
Myer's continued success with its in-house brands, such as Trent Nathan and sass & bide, is helping to boost margins and offset ongoing cost pressures in other areas.
Myer intends to introduce additional new brands such as Napoleon Perdis by the end of the year.
Myer is also benefiting from the "normalisation" of retail prices in areas such as cosmetics, where international brands have been forced to cut their local prices as consumers began accessing international prices online. The lowered prices here are now helping to boost sales at local department stores, Mr Brookes said.