Retailers confident the signs of a boom are here

RETAILERS are starting to believe things have changed for the better. But how do they know? There are some telltale signs.

AGL Movies photo

HOW do the nation’s top retailers know times are changing for the better? More men will snap up big-screen TVs and more women will buy complete outfits.

You may have heard how the chairman of Estee Lauder noticed it was selling more lipstick after the September 11 terror attacks deflated the world economy — women were boosting their mood with an inexpensive purchase.

Now, the bellwethers of a boom can be revealed.

Following a dramatic improvement in a key consumer confidence index this month — the result of a Federal Budget less bad than feared and a further cut in interest rates — News Corp Australia asked leading retailers what signs they are looking for in their stores that sentiment is shifting into a higher gear.

JB Hi-Fi boss Richard Murray said: “If you are going to upgrade your TV, you only do that if you are feeling confident.”

Sales of other major categories of consumer electronics such as smartphones and computers are not useful indicators of consumer sentiment, Mr Murray said, because they now get replaced “out of need” not desire.

“We’re reasonably bullish on TVs,” Mr Murray said, due to improving value for money and the emergence of new content services such as Netflix.

Consumers will usually buy TVs when things are looking up

Myer deputy CEO Daniel Bracken said: “When consumer confidence is high, our customers are more likely to buy a whole outfit instead of a single piece. You buy for an entire look rather than for a particular need so perhaps a scarf to complement your winter coat or shoes and a bag to go with your new dress.”

Harvey Norman chief financial officer John Slack-Smith said small business owners had already responded to the Federal Budget announcement of an immediate tax deduction for every asset they buy under $20,000.

“What we are starting to see and certainly expect to see is that there will be a real run before the end of the financial year on June 30,” Mr Slacksmith said. “It might be bar fridges for the office, redoing a kitchen for the staff, or a television for the foyer of a dentist.”

Many consumers are also being influenced by hit TV shows such as The Block and My Kitchen Rules, leading to increased interest in home renovation, Mr Slacksmith said.

Bunnings and Officeworks boss John Gillam said Sydney and Melbourne are “off and running”. These markets have benefited from strong housing demand.

“When the housing market is on the run, you see more activity on tarting the house up,” Mr Gillam said.

The Westpac-Melbourne Institute consumer sentiment index is at its highest level since January 2014 following a surge in response to the Budget and the Reserve Bank of Australia’s latest interest rate cut. Confidence is improving everywhere except Western Australia.

“What we are seeing is a clear sign of robust recovery coming though in NSW and mixed conditions in the other states, with the exception of WA, which is deteriorating following the end of the mining boom,’’ said Westpac senior economist Matthew Hassan.

Resource-rich Queensland was not as weak as WA, he added, because its economy was more diversified. For instance, the state’s tourism sector was benefiting from a lower Australian dollar.

Retailers are hopeful things are looking up after the latest interest rate cut

Explaining the big improvement in sentiment in May, Mr Hassan said the 2014 Federal Budget had “knocked the stuffing” out of confidence. This year’s Budget didn’t contain the same “nasty shocks”, which removed a “big negative” from the minds of many.

The lingering concern was job security, particularly in Victoria and South Australia, the homes of dying industries such as vehicle assembly. For four years “consumers have been bracing for a recession-like labour market”, Mr Hassan said.

That hasn’t materialised and is unlikely to.

“We will regain momentum,” Mr Hassan said. “I suspect that Christmas this year might be a bit of turning point for retailers. “With a couple of rate cuts (already) and a bit more momentum around sentiment, 2016 will be a better year.”