Gerry Harvey isn’t happy. As Patrick Stafford reports today, Harvey Norman and other big retailers like JB HiFi are struggling to combat the impacts of falling prices, particularly on items such as electrical goods.
While products such as flat panel television screens and other Blu-Ray players are always falling, the strong Australian dollar (and frugal consumers) are exacerbating the fall in prices.
Poor old Gerry went so far as to tell the AFR that the GFC was “bullshit”, saying the current conditions were “a lot worse now for people in this particular space.”
Unfortunately, today’s consumer sentiment data from Westpac suggests the situation is going to get worse.
Westpac’s chief economist Bill Evans tracked a strong increase in the index that measures household’s preparedness to buy a major household item and says this is probably being driven by all the news about the high Australian dollar.
“This component jumped by 9.9% in October and is now 11.6% above its level a year ago and at the highest level for more than five years, a period that covers the consumer spending boom in 2007,” Evans says.
It’s good news and bad news for retailers. One the one hand, consumers are starting to look like they are more willing to spend, and as Evans points out a solid start to the Christmas selling period looks likely.
On the other hand, frugal consumers realise that prices should be falling further with the higher Australian dollar, and could be even more aggressive in their bargain hunting.
And as Gerry Harvey says, when prices drop dramatically, a business can find itself in the position where it has to sell twice as much to get in front.
To further complicate things, Evans says consumer confidence could be shaken if there is another rate rise – and he’s tipping one for November.
A hike would be really bad news for retailers. It could push consumer confidence down, push the dollar higher and therefore force businesses to bring prices down further.
The economy is picking up, but Gerry Harvey and other retailers still face a pretty tough few months.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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