Retailers facing another tough Christmas as Myer abandons plan to end discounting

Retailers are being urged to develop comprehensive sales plans for Christmas, as margins are tipped to stay under pressure after industry giant Myer signalled late last week it will continue to aggressively chase consumers through discounts.

The warning comes as Westpac chief economist Bill Evans said in the bank’s consumer confidence report last week that new indicators suggest shoppers will hold back on spending this year.

Retail Doctor chief executive Brian Walker says the atmosphere during this pre-Christmas period is quite subdued, and businesses are becoming desperate in trying to bring in sales.

“I have to say, a lot of the retail I’ve seen in the lead up to Christmas is pretty uninspiring. There is no real excitement among offers, they are still clearing out old stock and there hasn’t been a lot of inspiring offers there. Fashion retails are still clearing out old stock.”

“It feels a little bit ho-hum right now, and that definitely has an impact on sales. I was in a shopping centre this weekend and there were carols playing, so six weeks until Christmas feels a little desperate.”

That “ho-hum” feeling has been emphasised by giants in the retail sector, including Myer chief Bernie Brookes. At the company’s annual general meeting last week, after announcing a fairly disappointing 1.53% decline in sales for the first quarter, Brookes said the company will continue discounting.

“Our original desire was to reduce the markdowns that we had in the first quarter . . . we haven’t been able to achieve that because we’ve been chasing sales,” Brookes said.

“We achieved it for the first two months, but then in October as business got pretty difficult, we were aggressively spending on markdowns.”

The comments also come as the latest Westpac Consumer Confidence report found 34% of shoppers will spend less on Christmas presents than they did last year, while 53% said they would spend the same amount.

Westpac chief economist Bill Evans said in the report that, “we have taken an intense interest in the components of the index”.

“The economic outlook components generally fall sharply when interest rates are increased but recover quickly during periods of steady rates. Underlying the buoyancy of the economic outlook is the general assessment that the mining boom will be positive for the economy but not necessarily helpful to households’ own financial position.”

All these signs point to a harsh Christmas for retailers, with interest rates keeping consumers wary to spend and continued discounting, driven by giants such as David Jones and Myer, putting pressure on margins.

But Walker says businesses can still turn a profit – they just need to develop a plan and start acting on it quickly.

“If you take Myer for instance, they have been planning their Christmas ranges for quite some time, and they will be working with their suppliers to make sure their profits are as good as possible. So I don’t think he’s particularly tormented so much.”

“So other retailers can take a look at that and think, what is their position? There is still a good opportunity for selling but they need to have a strategy.”

Walker says companies need to start developing a point of difference between themselves and other retailers.

“What is your strategy to boost the higher average spend? Are you training staff to sell, and have good product knowledge? Think about your store windows, what is in them? Are you changing them to keep it fresh?”

“Have a theme for Christmas and work to get people excited about it. Don’t start too early, but look to start around the first week of December.”

Despite the pessimistic indicators in the Westpac survey, Walker says he is confident of retail sales remaining relatively solid, as long as businesses do their part.

“I am reasonably optimistic about the overall level of retail spend this year. I think it will be okay, but the important thing is the margins. That’s a slightly different proposition, so companies need to have good gross profit planning and work with their suppliers ahead of time.”