The online ointment eluding retailers

Retailers are copping it this earnings season as consumer sentiment remains stubbornly low. As companies ramp up their responses, they are still ignoring the online opportunity.

In the myriad retail trading results released this season thus far, one theme has prevailed: the ongoing subdued retail environment.

When consumer sentiment falls, price-conscious retailers tend to be the winners. But looking at today’s results, there is little question that even these retailers are feeling the pinch.

While Super Retail, The Reject Shop and Fantastic Holdings all reported higher profits and revenues for fiscal 2012, with each media release came the view that the tough retail environment had an impact.

But with Australia boasting one of the strongest economies in the world, how is consumer sentiment so low?

Looking at the numbers, it doesn’t seem to add up. Australia has managed to escape the crippling recessions that much of Europe and the US have had to battle through over the past few years. Meanwhile, the country also enjoys one of the lowest unemployment rates in the world, at 5.2 per cent.

Add to this that interest rates are relatively low, and the fact that the economy has grown steadily since the global financial crisis, and it becomes increasingly difficult to justify such low consumer sentiment.

Yet that’s what retailers are dealing with. The latest Westpac-MI consumer sentiment index showed a 2.5 per cent drop in confidence in August, to 96.6 points. This was despite two consecutive interest rate cuts in May and June and government handouts given to households in recent months.

In the aftermath of the global financial crisis, Australian consumers have remained cautious. A levelling-off housing market and ongoing concerns over China and the mining sector, as well as a persistently high Australian dollar have not helped the situation.

But while Australians seem to have been infected with the same sense of doom and gloom that is rife in Europe, they just don’t have the same legitimate reasons for such fear.

So what’s the problem?

Australians can’t seem to get beyond their nervousness over the economy. So, as they continue to save more now than they have in decades, foregoing discretionary items in order to have a few more dollars in the bank and reduce debt, retailers have been forced to ramp up their strategies to get customers interested.

Fantastic Holdings has engaged in a range of initiatives to save costs, Super Retail is growing its business through acquisitions, and The Reject Shop has focused on both cutting costs and growing its store network.

While not exactly exciting or inspired, these moves should allow the retailers to continue performing in the subdued market, for a time at least. But with consumer sentiment tipped to remain subdued for a time, they should consider focusing on building up their online presence.

By going online, retailers can both cut costs and stock a wider range of goods. And despite subdued consumer sentiment, online spending in Australia continues to grow at a rapid pace – 29 per cent per year, compared with growth in traditional retail sales of just 2.5 per cent per year.

While consumer sentiment remains subdued, retailers need to look at reducing overheads and cutting costs by getting online and getting more competitive.

Follow @ClionaODowd on Twitter.

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