The cash registers are not ringing and retailers are worried, write Eli Greenblat and Maris Beck.
ZHU ZHU Pets, pocket-sized hamster dolls that go by names like PipSqueek, Num Nums and Mr Squiggles, are being tipped by the nation’s leading retailers as one of the hottest toys for Christmas.
Kmart and Toys ‘R’ Us are so smitten with the Chinese-inspired action figures they have packed their shelves with the little critters and placed upon their tiny furry shoulders their collective hopes that the fog engulfing shoppers will clear in time for the key gift-buying fortnight before December 25.
Items such as Zhu Zhus – Chinese for ”little pig” – are typically priced under $20 which, according to many businesses and retail industry experts, is the critical price point this Christmas that will provide an affordable indulgence for parents while also keeping children happy. It may also save the bottom line of retailers.
This is because retailers are having to work overtime to encourage increasingly reluctant shoppers to open their wallets.
It is a frugal mood that has hung around since the middle of the year but accelerated sharply after the official interest rate increase last month and the decision by all four of the big banks to go above the 25 basis point rise announced by the Reserve Bank.
This new and unprecedented level of thriftiness spreading through the population comes at a bad time for shops, big and small, as many make the bulk of their annual profit between now and the new year.
Some retailers, like Myer, David Jones, JB Hi-Fi and Harvey Norman, are increasingly relying on stepped up discounts and promotions to bring in buyers; others have deliberately selected merchandise for their shops that meets the more frugal nature of consumers and represent good stocking fillers. But those retailers who ordered their Christmas stock nine months ago when times were better could be caught out by the sudden slump in spending.
”Budget constraints are definitely real and people are looking to shop around more than ever,” says Kmart’s general manager for marketing, Paul Church.
”Toys in the range between $10 and $20 are certainly shifting a lot of volumes and gifts right across the store at $20 or less is where the main offer is.”
The mining boom, nourished by robust economic growth from China, a resilient domestic economy compared to the bombed-out wreck of North America and Europe, should see the tills ringing. But they are grimly silent.
Chris Ozdilian, the owner of H&H Jewellery in Melbourne, is acutely aware of the nervousness of consumers. ”Everything’s a bit down,” says Ozdilian as he scans cabinets glimmering with jewellery. He says his profits are down about 10 per cent compared to last year, but he still feels lucky. ”I’ve been hearing from other jewellers. Some of them are 40 per cent down.
”Even when we had the financial crisis last year it wasn’t that bad for us. I think it’s coming this year more.”
It seems shoppers have a lot on their mind at the moment. Higher interest rates, rising energy prices and a new fixation to pay down personal debt has diverted funds away from shopping centres and strips. A consumer sentiment survey by Mortgage Choice found that 27 per cent of respondents were worried about the cost of living, compared with 17 per cent a year earlier.
Data collected by the Bureau of Statistics has confirmed this view, with spending on telecommunications goods and services like mobile phones and the internet dropping by a record 3.1 per cent while petrol sales fell 5.2 per cent in the year to September – the biggest decline in 25 years of records.
The sector cannot even rely on a balmy summer to generate sales. Unseasonably mild and wet weather, especially across the eastern states, have helped to push fashion and fashion accessories turnover even lower.
Retail trade figures released on Thursday revealed just how bad things have got. A 1.1 per cent slide in national retail sales in October was the worst result in more than a year while the wet weather in the big cities has seen cafe and restaurant sales drop significantly.
In an equally bad sign, non-food retailing is also down, with some areas registering the biggest retreat in 20 months. A Westpac economist, Matthew Hassan, says the Christmas season is looking ”pretty ominous” for retailers. ”You’d have to say this is shaping up as not a disastrous Christmas season, but one that is looking a little bit weaker.”
Hassan says consumer caution – which has dogged the retail sector since the financial crisis – had showed signs of abating last month. Household incomes were rising strongly, the Reserve Bank held off increasing interest rates, and consumer sentiment rallied.
But he says conservatism has crept back in time for the Christmas season, as people tackled debt rather than shopping. Australians, traditionally savings averse, cranked up household savings to 10.2 per cent of income in the third quarter, up from 8.9 per cent in the previous quarter and the highest in two decades except for during the government stimulus handouts.
”Savings haven’t just risen, they have surged dramatically. We really can’t understate the significance of that rise.” Hassan said consumers had been ”deeply traumatised” by the financial crisis and by the rapidly rising interest rates that preceded it.
”The two events really got households quite concerned about their debt levels. I think many parts of the mortgage belt came very close to experiencing difficulties through that period. Since then the theme has been about getting debt levels under control.”
The CommSec chief economist, Craig James, says it remains to be seen how long this era of consumer conservatism will remain, but while it does retailers can expect fewer sales at the cash register.
”Some consumers look at the rising cost of utility bills or their monthly rent or mortgage payments and feel that they have no alternative but to cut back on spending in other areas.
”Whatever the rationale, consumers are very selective about purchases, are more active in budgeting, doing comparison shopping and scouring for bargains. Retailers remain under pressure in this environment.”
Similar sentiments were echoed by Margy Osmond, the chief executive of the Australian National Retailers Association.
”These figures go against all the indicators we normally rely on to see growth – people are employed, the economy is growing and the Australian dollar is flying high,” she said.
”While there may be a slight upward blip come December, consumers are voting with their feet and keeping their wallets zipped up tight.”
That’s a view which has certainly filtered down to shoppers. ”In terms of trends, definitely back to basics. We’ve seen that a lot, [like in] Christmas trees and decorations, the basic six-foot Christmas tree at a low price is selling quite well for us as well as basic decorations for the tree,” said Kmart’s Church.
“Little things are big news this year in toys,” says Marion Joyce, the general manager of marketing for Toys ‘R’ Us. ”Collectible toys like Zhu Zhu Pets, Party Animals, Mighty Beans and Polly Pocket are part of one of the fastest growing categories of 2010 and are expected to be best sellers this Christmas.
”Better still, these stocking fillers retail for less than $20, which is helping parents give their children hours of fun this Christmas – without blowing the budget.”
The Reserve Bank governor, Glenn Stevens, has welcomed Australians’ new enthusiasm for saving, which will probably only further infuriate retailers who strongly argued the November rate rise was unnecessary and a danger to the sector’s health.
In a speech to the Committee for Economic Development of Australia delivered on Monday, Stevens said: ”In all the circumstances, considering what has happened around the world in recent years, more cautious behaviour by households is not surprising. Nor, would I argue, is it unwelcome.
”Consumption deferred – private or public – can easily be enjoyed in the future; consumption we get used to today is harder to wind back in the future if circumstances change.
”These issues, and the associated structural adjustment issues [some sectors could shrink], no doubt will pose a challenge. But that’s the challenge of prosperity – and not a bad challenge to have.”
It’s that shrinking feeling that many retailers are feeling right now.
”People don’t actually like seeing cash part from their fingers,” says Jo Mancuso, the owner of the women’s clothing store Urban Soul. They are buying on credit cards, she adds, but not as much as last year.
”I can see people becoming more and more indecisive – taking longer to make a decision. They’re not sure. People are holding back.”
The turnover in her suburban high-street shop has dropped 10 to 20 per cent compared to last year.
The long spring rains have not helped summer fashion, she says, and the government’s stimulus money was spent long ago.
At the bigger end of town department store owners like Myer and David Jones are reacting to the tight consumer environment by slashing prices, offering large discounts on key items well before the traditional time for these types of promotions at the Boxing Day sales.
It’s a tactic that is usually out of reach for smaller independent retailers and shopping centres which cannot afford to further crimp their profit margins. Myer has no such qualms, and after an attempt to limit its discounting strategy from July was met with a competitive onslaught from rivals such as JB Hi-Fi, Harvey Norman, Pumpkin Patch and Target.
Myer quickly returned to its aggressive discount ways, but even with prices being slashed, Myer’s boss, Bernie Brookes, will still be able to hit his profit target for 2010-11.
”As soon as Myer goes on sale they [shoppers] go running, says Mancuso. ”I think those big department stores kill a lot of shops. They go on sale constantly.”
Usually the best of enemies, if there is one thing that is binding the big department stores and retail chains with the small independent retailers during the consumer retail malaise is the growing and ever-present threat of the internet.
Australians have grown more savvy and confident in surfing the net for shopping, just when parity with the US dollar has made goods coming out of the United States so much cheaper to import.
The huge shift online has caught the attention of one of Australia’s most successful and outspoken retailers, Gerry Harvey.
Last week Harvey, feeling the pinch as shoppers bypass his shops and go online, called for the construction of new protectionist walls through a reduction in the $1000 threshold at which imported goods are exempt from the GST.
The plea may have only served to encourage consumers to venture on to the web to see what all the fuss is about, and sites like eBay have been the immediate winners.
An estimated 6 million users a month are flipping through eBay’s Australian site. The business is priming for a big Christmas sale that would rival that of any large department store. The internet has become such a competitor to bricks and mortar establishments that eBay has stepped up its own Christmas discount sales, offering 300 special items on heavy discount, triple the size of last year’s sale.
But an eBay spokeswoman, Jenny Thomas, rejects the notion that shoppers buying online are robbing the economy of revenue and jobs.
”It’s always interesting to hear people say all the money is going overseas or not supporting our local businesses, but that’s not true from what we are seeing.”
Ebay maintains that many Australian retailers sell via its site, keeping the money in the country, while some consumers use the web to find brands not available here. ”If you are online in the game you absolutely can reap the rewards of consumers who are going online to shop.”