Retailers are already preparing for a surge in consumer spending over the coming Christmas period. Sales expectations for the December quarter have climbed to a 12-year high, yes you read that right, 12-year high. What’s more, profit expectations have now climbed way out of the negative territory.
The retail sector’s sales expectations index is 12 points above the national average. This result comes off the back of a June quarter that was stronger than expected. Basically, if the rest of the country is smiling, the retailers are smiling 12 inches wider!
The June quarter sales result which was significantly better than the prior quarter, has provided a boost to industry confidence. However, it also coincides with widespread discount campaigns, and these price reductions are not about to stop. They are expected to continue over the Christmas period, with retailers’ expectations for selling prices falling to the lowest point in seven years. I can see the shopaholics already warming up with evil grins.
How are retailers preparing for Christmas?
To meet the expected Christmas demand businesses are planning to replenish inventories, with the index rising from -8 to 33. Retailers are also expecting to increase staff numbers, with the employment index up by seven points from -1 to six.
Retailers’ expectations for the coming holiday season are substantially more upbeat compared to the same period last year, when the sales and profit expectations indices were at a conservative 5 and -1 respectively. Compare this to a current index of 50 for sales and 11 for profits.
Why are retailers optimistic about Christmas?
According to Dun & Bradstreet’s CEO, Gareth Jones, a solid performance in the June quarter has provided a very welcome uplift in sentiment for a sector that has faced a prolonged period of deflated spending.
“The retail sector is being challenged by conservative consumer behaviour, which is forcing discounting and putting pressure on company margins,” Mr Jones said.
“The second quarter improvement is undoubtedly a welcome respite and it has raised hopes for a solid performance in the lead up to Christmas. However it is clear retailers have hinged their hopes on a continuation of discount campaigns, with executives indicating they will lower prices in the December quarter.”
The improvement in retail sector sentiment comes as fewer firms express concern about the exchange rate. People are simply no longer that worried about the dollar. The number of retail executives concerned about the impact of the dollar on their operations fell from 49% to just over one third (35%) during August. Conversely, the number of firms expecting no impact from the dollar rose by 14 percentage points to 41%. The shift reflects recent downward movements in the dollar, which have brought the currency closer to parity.
What are the other sectors’ Christmas expectations?
While retailers recorded the most noticeable improvement in the outlook for the coming quarter, optimism also rose in other sectors. The Christmas spirit is kicking in everywhere! Sales expectations across all industries surveyed climbed to an index of 38 and profits to an index 17. Plans for employment, inventories and capital investment also rose, with the indices reaching six, 26 and 10 respectively. The only index which fell was selling prices, dropping five points to nine.
“It’s promising to see an improvement in the outlook across the board and particularly in sectors that have felt the impact of an elevated exchange rate. Solid expectations in key areas, including profits and employment, are a positive sign as we head towards the end of the year and an encouraging shift from an extended period of pessimism,” Mr Jones said.
“However, the uptick in capital investment expectations was slight, indicating that a significant majority of firms remain focused on the short-term.”
About The Survey
D&B Australasia conducted the latest Business Expectations Survey in August 2012 involving 400 businesses. Each quarter 1,200 (400 per month) business owners and senior executives representing major industry sectors across Australia are asked if they expect increases, decreases or no changes in their upcoming quarterly Sales, Profits, Employment, Capital Investment, Inventories and Selling Prices.
Image by Hercule Poirot