MYER will extend its aggressive discounts and promotions through to Christmas after its attempt last month to wind back the markdowns began to threaten turnover as retail rivals continued to slash prices.
The failed strategy to shrink its dependency on discounts from July was also sabotaged by consumers fixated on bargains in the face of the rising living costs, especially electricity and utility prices and the rise in interest rates by the Reserve Bank.
Speaking after the department store owner's inaugural annual meeting yesterday, chief executive Bernie Brookes said Myer was unable to pare back its markdowns in the first quarter as its competitors kept their foot firmly on the discount pedal.
"Our original desire was to reduce the markdowns we had in the first quarter. We haven't been able to achieve that because we have been chasing sales," Mr Brookes said.
"We achieved that for the first two months but then in October as business got pretty difficult we were aggressively spending on markdowns, and so the answer is we are going to continue to aggressively chase the consumer."
At the publication of Myer's full-year results in September Mr Brookes said Myer would take advantage of a rebounding economy to ease back on its aggressive discounting.
But yesterday Mr Brookes said that Christmas would be characterised by a tough fight for consumers, all the more reason for Myer to back away from its push back on discounts.
Poor weather conditions also dented Myer's ability to ratchet up prices, while competitors such as JB Hi-Fi, Harvey Norman, Pumpkin Patch and Target kept focused on price cuts and prevented Myer from changing course.
Heavy discounting begun by Myer and other national retailers last year triggered a frenzy of price cuts this year, squeezing the margins of smaller businesses and constraining revenue.
The strength of the Australian dollar against the US and other currencies has also slashed the price of goods, especially electrical and white goods, dampening sales for some of the country's biggest stores.
Yesterday Myer published its first quarter sales results, with discounting and price deflation causing a 1.53 per cent fall in sales to $706 million. On a like-for-like basis, sales for the first quarter of 2010-11 were down 1.74 per cent.
Myer said that furniture, women's accessories, menswear and youth apparel performed strongly during the quarter, offset by relative weakness in the entertainment category, which was the largest beneficiary of last year's federal stimulus package.
Mr Brookes said the increase in interest rates this month had an immediate and measurable impact on consumer spending and confidence, while the extra rate rise passed on by the banks to their mortgage customers worsened spending.
"It's like getting two [interest rate] increases in a very short period of time and the issue is the consumer got the first belting with the interest rate rise then they get the second one as the banks move up and so what you are getting is the double-whammy effect."
Despite this, Myer confirmed at the meeting yesterday that profit should grow by 5 to 10 per cent in 2010-11 - assuming no further deterioration in trading conditions.
Frequently Asked Questions about this Article…
Why is Myer extending aggressive discounts and promotions through to Christmas?
Myer is extending aggressive discounts because its earlier attempt to pare back markdowns threatened turnover as rivals continued heavy price cuts. CEO Bernie Brookes said consumers remain fixated on bargains amid rising living costs and higher interest rates, so Myer is “aggressively chasing the consumer” to protect sales over the Christmas period.
How did Myer’s first-quarter sales perform and what are the key sales figures investors should note?
Myer’s first-quarter results showed sales fell 1.53% to $706 million, with like-for-like sales down 1.74% for the first quarter of 2010–11. The decline was attributed to heavy discounting and price deflation across the retail sector.
Which product categories at Myer performed well and which were weak in the quarter?
Myer reported strong performance in furniture, women’s accessories, menswear and youth apparel. The entertainment category was relatively weak, having been a major beneficiary of the previous year’s federal stimulus and now showing softer demand.
How have competitors like JB Hi‑Fi, Harvey Norman and Target affected Myer’s pricing strategy?
Competitors such as JB Hi‑Fi, Harvey Norman, Pumpkin Patch and Target kept focused on price cuts, which prevented Myer from successfully reducing markdowns. Ongoing competitor discounting forced Myer to reintroduce aggressive promotions to protect sales.
What economic factors mentioned in the article have dented Myer’s sales and margins?
Key factors cited include rising living costs (notably electricity and utility bills), recent interest rate rises and banks passing those increases to mortgage customers, poor weather affecting consumer activity, and a stronger Australian dollar that lowered the price of imported electrical and white goods, all of which dampened demand and squeezed margins.
What did Myer’s CEO say about the impact of interest rate rises on consumer spending?
CEO Bernie Brookes said the rise in interest rates had an immediate and measurable impact on consumer spending and confidence. He described a ‘double‑whammy’ effect when consumers felt the initial Reserve Bank increase and then experienced banks passing on further rises to mortgage customers.
Despite the discounting and tougher trading conditions, what profit guidance did Myer give for 2010–11?
Myer confirmed it expects profit to grow by 5% to 10% in 2010–11, provided there is no further deterioration in trading conditions.
What key indicators should everyday investors watch in Myer and the broader retail sector based on this article?
Investors should monitor Myer’s like‑for‑like sales and quarterly sales trends, ongoing discounting or margin pressure from competitors, movements in interest rates and bank pass‑through to mortgages, the Australian dollar’s effect on import prices (especially electrical goods), and seasonal trading indicators such as Christmas promotions and weather impacts.
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