Friday, July 15, 2011
A day after department store giant David Jones revealed a dramatic reversal in its sales and profit outlook, its chief executive took aim at the Prime Minister and her carbon tax, saying it had contributed to shoppers curbing their spending.
The Australian National Retail Association also warned that the debate over the carbon tax was adding to the worries of consumers after a year when interest rates and energy prices had been on the rise.
An already fragile sharemarket was rattled by the warning from David Jones boss Paul Zahra that his stores were experiencing the worst trading conditions in more than 20 years.
The warning sent the David Jones share price plummeting almost 20 per cent and produced a knock-on effect across the retail sector, with Myer and shopping centre owner Westfield among those sold off.
While Mr Zahra emphasised that rises in interest rates and the cost of living were spooking shoppers, he said the retail outlook was made worse by political uncertainty and the threat of new taxes, which were particularly costly for DJs' core higher-income customers. "There is such a level of uncertainty with a minority government . . . people just don't know what else is about to hit them," he said.
He cited the flood levy and the carbon tax debate as ways in which Ms Gillard's government had hurt confidence. "So the reality is she has hit our customers directly," Mr Zahra said. "That aspirational customer has actually stopped shopping and people are just not confident about the year ahead.
After the carbon tax policy was released on Sunday, Myer boss Bernie Brookes said it would add $3 million to $6 million to costs, and these would be passed on to consumers.
But Australian National Retail Association chief Margy Osmond said confidence had already been hit by rates and living costs before this week. "When you add to that things like the Queensland flood levy, the carbon price and the prospect there might be more interest rate increases . . . it's combined to make a serious loss of confidence," she said.
Russell Zimmerman, of the Australian Retailers Association, said talk about the carbon tax from both sides of politics was biting. "There is a lot of talk about it out there and people get concerned by the fact they are uncertain about how it is going to affect them."
But Opposition Leader Tony Abbott disputed the claim by Treasurer Wayne Swan that his talking down of the economy had hit confidence. "I want to restore confidence by stopping the carbon tax," Mr Abbott said.
Access Economics director Chris Richardson said retailers were facing "an absolutely howling headwind" because households were now saving their money after two decades of spending freely. "DJs are the canary in the mine warning of a decline in discretionary spending," he said. "But there's a number of causes, not just the carbon tax. The talk of possible interest rate rises, the crisis in Greece, and the soft patch here in Australia: worrying signals are clearly flashing."
Financial markets are now punting on a rate cut in coming months, and possibly two.
The Bureau of Statistics says household saving jumped sharply during the global financial crisis, fell briefly, but is now back at crisis levels. In the March quarter, households saved 11.5 per cent of their disposable income, up from 0.7 per cent in the six years to 2007.
Household savings are now almost as high as in the mid-1980s, before Australians began taking on serious debt.
The downturn has led to a number of collapses in the retail sector including booksellers Borders and Angus & Robertson and fashion chain Colorado. And last night, the former Direct Factory Outlet in Melbourne's Southern Cross station was placed in receivership.
Meanwhile, sharply weaker conditions in the real estate market are predicted to push Victoria's home prices lower in the next year, the National Australia Bank said in its quarterly assessment of the market.
The NAB residential property index tipped home prices would sink 2.1 per cent in the 12 months from June.
RETAIL SHARE PRICES IN FREEFALL
HARVEY NORMAN $2.30
JB HI-FI $15.65
DAVID JONES $3.20