Myer predicts hit from rise to health levy

Myer has warned the proposed increase to the Medicare levy will hurt sales at its stores, since it will affect its direct customer base.

Myer has warned 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 plans 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 a year increase to the Medicare levy "is something they would have spent with us", Myer chief executive Bernie Brooks told a Macquarie Investment seminar on Wednesday.

The proposed levy "is not good for our customers and may have an impact", he said.

The indicated cost of $350 a year is for a wage earner with an "average" household income of about $72,000 a year. The financial impost would be greater for wage earners in higher salary brackets, which could affect sales at department stores in particular since their customers typically have higher incomes.

Mr Brooks 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 both school holidays and Easter came around earlier this year.

Myer has continued to enjoy good sales growth from its expanding suite of in-house, exclusive brands, Mr Brooks said, which was helping to offset continuing cost pressures.

Even though the company is planning to open new stores over the next five years, this would not result in any net increase in total retail space since Myer intends to continue to reduce floor space at existing outlets, which would both help to reduce its total rental bill and boost sales per square metre of retail space along with productivity, he said.

Since much of the floor space that would be surrendered at existing outlets would be located on higher floors, and would often be difficult space for the landlord to find alternative uses for, it would not result in a straight line reduction in rental costs at the various outlets, Mr Brooks said.

Also helping to boost margins is Myer's continued success with its in-house brands such as Trent Nathan and Sass and Bide, which are helping to boost margins, and offset cost pressures in other areas. Myer intends to introduce additional new brands such as Napoleon Perdis by year end.

It is also benefiting from the "normalisation" of retail prices in areas such as cosmetics, where international brands have been forced to reduce local prices as consumers have accessed international prices online, with the lower prices locally helping to boost sales at department stores, Mr Brooks said.

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