Be prepared for four months of pain: Gottliebsen

As the Reserve Bank Board meets to consider their interest rates policy, most of what they need to know can be gleaned from the saga now taking place at Australia’s largest department store retailer, Myer Emporium.

In particular, the Myer assessment of the outlook for demand for non-essential goods in the next three or four months and the Myer strategy to reduce staff hours is being embraced by businesses around the country. And again, like many other businesses, Myer is also devising ways to try and maintain turnover.

The December Rudd stimulus package delivered Myer, along with David Jones and other retailers, a better than expected Christmas and post-Christmas sales period. But because we are dealing with a long extended global downturn there was limited follow through. Myer anticipates that, without action, February, March, April and May will be awful months.

This is exactly the sentiment that came from Australian Industry Group CEO Heather Ridout when she said that AIG members had no substantial forward orders.

Myer’s first step in preparing for the looming sales downturn is to reduce the hours of part-time workers in a large number of its stores by 20%. Under its awards, it is only allowed to make that reduction if the staff joined after 1994. Some part-time staff are unaffected. The company has not embarked on a mass retrenchment of full-time staff.

Similar action is being duplicated in enterprises around the country where contractors, casuals and part-time staff find their hours are being cut back. For the most part these moves will not affect the Australian unemployment figures, but it will have an enormous effect on the spending of the Australian community.

The Reserve Bank must look at “real” unemployment, and in Australia the major group monitoring these figures is the Morgan organisation. As I pointed out last month, Morgan says that in December 2008 the real unemployment figure was 700,000 (6.4%), or some 2% above the official figure.

However, if you count as not fully employed those who have a part-time/contracting jobs and want more work (732,000) you arrive at a staggering figure of nearly 1.5 million people or 13.2% of the workforce who are either on the unemployed list or are under-employed.

The lesson from Myer is that we must prepare for three or four tough months and be prepared for that Morgan unemployment figure to skyrocket much faster than official figures.

But Myer is doing much more than just reducing staffing levels to minimise the effect of the slow down. It does not plan to cut its base advertising/marketing spend but has convinced a series of suppliers to link with Myer so that the actual level of Myer promotion will jump substantially without extra Myer outlay. And with greater volumes of media spend, in a tough market, much better media deals will be obtained. Hopefully this will boost sales from what they would have been.

What if volume rises and there are insufficient staff to cope? Myer will face that problem if and when it comes. The more immediate problem is that the earlier changes, plus this latest set of cuts, has plummeted staff morale in some stores. If there is any up-tick in customer numbers and the sales people are not there, then the business is lost and/or the goods are stolen. There are no easy answers.

This article first appeared on Business Spectator