Wesfarmers boss warns economic ‘honeymoon is over’

The boss of Wesfarmers has warned that “the honeymoon is very much over” after years of low interest rates and Covid cash handouts.

The boss of Bunnings and Kmart owner Wesfarmers has warned that “the honeymoon is very much over” after years of ultra-low interest rates and pandemic cash handouts.

Rob Scott was speaking to investors and analysts at the Perth-based retail conglomerate’s strategy day in Sydney on Tuesday, where he said shoppers were now looking for value and opting for cheaper categories, The Australian reported.

“I would say that now the honeymoon is very much over,” he said.

“It was also one of the only times at least in the last few decades that I can recall where value wasn’t as important for households when they had very high levels of accumulated savings, very low interest rates, and value was not as important.”

He noted that customers were now “trading down categories, they are looking for value-oriented products, this benefits us and the core of what our businesses do”.

“We expect value to become even more important for customers, and we are seeing that today,” he said, according to The Australian Financial Review.

Wesfarmers, which also owns Target, Officeworks and Catch Group, flagged potential growth in health and lithium.

Wesfarmers managing director Rob Scott. Picture: Supplied

Mr Scott said cost of doing business pressure was “coming back, domestic costs, costs increasing and I feel we are pretty well positioned to deal with that”, while also noting population growth surging after Covid was “clearly a positive for many of our businesses”.

He also warned that upward pressure on wages was “shining a light on productivity issues”.

“The downturn in labour productivity coming out of Covid is quite a challenge for business to push wages up at a high level when productivity is going backwards,” he said.

Bunnings boss Mike Schneider said the chain was looking at opportunities in its new power tools business and pet products, after Australian Bureau of Statistics data in March showed hardware industry sales went backwards.

“As we look across the other categories, and given the diversity of those, we see categories that have experienced good growth … cleaning and obviously new categories like pets,” he said.

In March, Bunnings launched a major pet range expansion with more than 700 new products including toys, bedding, grooming tools, carriers, training accessories, smart technology and flea and worm treatments.

Hardware sales slowed in March. Picture: Brent Lewin/Bloomberg via Getty Images

Meanwhile, Ian Bailey, head of discount chain Kmart, told investors he was targeting Gen Z and beauty as key growth areas. “Beauty is a category where we see a strong consumer demand for value, especially amongst younger customers,” he said, The Australian Financial Review reported.

It came as the Treasury’s top bureaucrat warned inflation would not be back within the Reserve Bank’s acceptable margin “quickly” but will stabilise within two years.

Treasury Secretary Steven Kennedy told Senate Estimates on Tuesday projections were for inflation to slow to 3.25 per cent by the 2024 June quarter and fall to 2.75 per cent the year after.

He also rejected claims of a wage price spiral, which the RBA had warned as likely in the face of persistent high inflation and a push for strong wages growth.

The wage price index is expected to grow 3.75 per cent in the 12 months to the end of June before climbing to 4 per cent by the middle of next year.

Kmart is targeting beauty and Gen Z. Picture: Arj Ganesan

The RBA said the uptick in the price of labour risked undoing the hard work of 11 cash rate rises to tame inflation.

But Mr Kennedy said “there are no signs of a wage price spiral developing”.

“Medium-term inflation expectations remain well anchored, and it is usual for wages growth to accelerate during an upswing in the economic cycle,” he said.

Real wage growth is expected by the March 2024 quarter, with Mr Kennedy conceding the ongoing high inflation and rising interest rates were “squeezing” household incomes and weighing on consumer spending.

“The impact of rising interest rates and elevated inflation differs markedly across households,” he said.

“Some carrying a large mortgage or with limited savings are likely to be finding conditions challenging. Furthermore, high inflation environments can be more challenging for those on low incomes, particularly if inflation is concentrated on central products such as food, energy and the cost of housing. The indexation of government payments to inflation will provide some protection.”

— with NCA NewsWire