Australia | Oct 03 2012
– Christmas will be very competitive
– Retailer inventory levels high
– Discounting to be unprecedented
By Eva Brocklehurst
Once again, retailers are expecting a very competitive Christmas shopping season. However, this time the pressure on selling prices looks to be the most intense for decades.
Dun & Bradstreet's latest survey shows businesses are expecting to discount strongly heading into Christmas to get buyers in the mood. According to the National Business Expectations survey, companies see discounting as the way to increase sales. Expectations for selling prices are now close to the lowest level in more than 20 years, having fallen by more than 10 points over the past two years to an index level of 11.
Forty nine per cent of businesses expect sales to increase over Christmas. Meanwhile, expectations for inventory levels have risen to the highest point since 2000, with more than a third of businesses expecting to boost their inventories to meet anticipated demand. This is a 21 points rise, up from an index of three during the December quarter 2011.
Dunn & Bradstreet CEO Gareth Jones said businesses are being forced to discount frequently now." Five years ago, discounting was a seasonal tactic that was primarily limited to post-Christmas and end of financial year periods," he maintained.
The reliance on discounting to deliver sales during the December quarter reflects the approach taken in the June quarter 2012. The selling price index fell nine points to three during the June quarter – the lowest index level since 1997.
However, there is the downside, as discounting impacts margins and culls profits. The survey shows one in five firms expect profits to fall during the December quarter. Retailers have expressed the most conservative expectations for profits in the coming quarter, with a profit outlook 14 points below the all-firms average at an index of seven.
Moreover, retailers appear to be reluctant to put on extra staff to sell all this discounted stock. Staff levels fell during the June quarter to an index of minus 4 and employment is seen remaining flat heading into Christmas. The profits index was up three points to an index of 4 in the June quarter and 30 per cent of companies increased profits while 26 per cent recorded lower earnings. Meanwhile, 31 per cent believe fuel prices will have the greatest influence in the quarter ahead and 28 per cent of executives ranked interest rates as the primary influence on their business, up two points from the prior month.
Dun & Bradstreet economist, Stephen Koukoulas, still sees sales expectations as buoyant and profitability rising. "The results fit with the general tone of the economy since the middle of the year when overall growth was close to the long running trend," he said. "This solid performance for sales does not however show up in employment expectations, which are broadly flat. This suggests that despite more favourable sales expectations, job creation and the unemployment rate are likely to be stable around recent levels."
Mr Koukoulas said the fall in selling price expectations suggests inflation will be contained to the lower end of the Reserve Bank's target band of 2-3% and should give scope to lower interest rates.
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