Australia | Jul 25 2006
By Rudi Filapek-Vandyck
Things are turning from not so good to worse for Australian retailers with National Australia Bank’s (NAB) June survey signaling the sector’s hardship is here to stay.
The survey reveals that margins throughout the sector continued to deteriorate in the June quarter. Moreover, at minus 14 points, NAB reports its retail margin index has now reached its lowest level since the inception of the survey in June 2002.
While selling prices have increased by 1.8% over the past year, NAB reports labour and purchase costs have increased at a rate of 3.6% and 3.2%, respectively.
Apparently, the average retailer still has expectations of some improvement in his
margins over the coming year, with the bank pointing out that actual outcomes have typically disappointed thus far.
It probably won’t surprise anyone the bank reports that profits throughout the sector have begun to trend lower, in line with the weaker trend in sales. The bank’s retail profit index declined from 6 points in May to 2 in June. In monthly terms the fall went from minus 2 points in May to minus 4 in June.
Food remained the strongest retail sector in June, with business conditions improving in personal & household goods and "other retailing".
Overall, NAB’s survey revealed both sales as confidence in the sector are waning. The retail survey points to an underlying CPI of around 0.7-0.8% for Q2 which would imply an annual increase of 2.7%. The bank believes petrol and food are likely to boost the headline/total CPI for Q2 to 1.3% which would take the annual rate to 3.7%.
The bank also reports its team of economists forecasts real household consumption to increase by circa 3.75% in the coming year. This would be slightly below the average of the past five years at just under 4% only.