‘We’re not out of the woods yet’: Kmart owner says rate cut not enough to entice shoppers

Cash-strapped Kmart shoppers have increasingly turned to cheaper in-house brands to save money, boosting profits for parent company Wesfarmers, but uncertainty over interest rates and broader global instability could spell gloom for the retail conglomerate.

Consumers with an appetite for low-cost alternatives to trendy items snapped up private label Anko products, sending Kmart’s revenue up 2 per cent to $6.1 billion for the six months ended 31 December. Overall, Wesfarmers posted a 3.6 per cent jump in revenue for the period to $23.49 billion, while net profit after tax jumped 2.9 per cent to $1.47 billion.

Wesfarmers chief executive Rob Scott said the results were “pleasing” given the bruised state of Australia’s retail sector and welcomed the Reserve Bank’s decision on Tuesday to lower interest rates for the first time in more than four years. However, he put to bed any hopes that things had taken a turn for the better, saying that prices remained a big worry for shoppers.

Wesfarmers CEO Rob Scott said uncertainty over rate cuts and lingering cost of living impacts on consumers could create more challenges for the retail giant.Credit: Ross Swanborough

“There’s no doubt that the fall in interest rates this week will help [consumer] sentiment, but it will take some time before we see a more substantial shift in consumer and business spending,” Scott said.

“We’re not out of the woods yet – cost challenges remain, especially in a low productivity environment, and the lower Australian dollar also could create some cost pressure in the year ahead.”

Scott’s cautious tone, coupled with RBA governor Michele Bullock’s comments this week that dashed hopes for more rate cut relief over coming months, point to unpredictable waters ahead for Wesfarmers.

Farhan Badami, market analyst at eToro, said that while the first rate cut in years was expected to give shoppers more disposable income, the impact would “likely be minimal, as consumers have shown they’ve become highly selective with their spending.”

Kmart profits soared 7 per cent, spurred by shoppers cashing out on its affordable in-house brand Anko.Credit: Nick Moir

US President Donald Trump’s plan to impose tariffs on US imports could prove challenging to Wesfarmers through supply chain disruptions and rising prices, but Scott said Wesfarmers was “better positioned than most” to adapt in the face of instability.

“We can’t control what the rest of the world is going to do with tariffs, but we can control our policy settings in Australia to make Australia more conducive to attracting investment, to driving productivity, to removing unnecessary regulation that slows investment and business down.”

The weak Australian dollar is another risk which could ramp up pressure on Wesfarmers’ costs – something Scott does not want to pass onto consumers. He has committed to keeping prices as low as possible for consumers, and said Kmart, Bunnings and Officeworks, were prepared to absorb the rising costs instead.

“I can’t tell you exactly what will happen, but you can be assured that our businesses, such as Kmart, Bunnings and Officeworks, will do everything they can to keep prices as low as possible,” he said.

The conglomerate’s shares enjoyed a healthy session, rising over 1 per cent to $77.43, even as the broader S&P/ASX 2000 dropped 1.2 per cent.

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