Profit warnings, shuttered stores: Retailers are desperate for rate cuts

It’s a sad reflection on the state of Australia’s discretionary retail sector that one of its biggest players, Mosaic Brands with 700 stores and almost 3000 staff, will disappear after an administrator’s auction couldn’t find any buyers.

Iconic names like Katies, Noni B, Rockmans and Rivers that have been part of the landscape for decades may evaporate without a trace, other than a line of creditors. After a hunt for possible buyers, the receivers and managers of Mosaic this week said they would be shutting all the stores in the group over the coming months.

Mosaic, whose brands catered to a value-seeking demographic, had its own particular set of financial challenges. But the fact that its individual businesses couldn’t be sold for even bargain-basement prices says plenty about the cost of living struggles being faced by many Australian consumers.

The discretionary retail sector is Jonesing for an interest rate cut to breathe some life into moribund sales growth and shrinking margins.

Mosaic owns the Rivers brand along with Noni B and Millers. The company called in administrators last year.

We have seen a string of profit downgrades from the sector that has now been under pressure for more than a year.

The landscape is characterised by deep discounting, which hasn’t been enough to lure customers back to the shops.

The latest example is one of our largest and best known brands, Country Road, which also owns Mimco, Witchery and Trenery. Its parent company, the South African group Woolworths, has reported a sales slump in the 26 weeks to the end of December 2024 as the business grappled with deep discounting across the Australian market.

It said sales for the 26 weeks to December 29 fell by 6.2 per cent and 7.8 per cent on a comparable stores measurement.

The company said in a trading update on Tuesday that the Australian consumer was feeling the sustained effect of high interest rates and elevated living costs, which continue to weigh on consumer behaviour and discretionary spending. It compared its Australian performance with sales in South Africa, which were not as depressed thanks to easing interest rates and moderating inflation.

It follows an update earlier this week by shoe retailer Accent which showed its rate of sales growth was slower as the calendar year came to an end, and that margins were retreating.

It is difficult to find an island of discretionary retail outperformance in the choppy sector.

Even one of the country’s most successful retailers, Solomon Lew, needed to update the market a few weeks ago with news that his Premier apparel brands, which are now to merge with Myer, had suffered a decline in earnings.

Meanwhile, Myer’s total sales for the first five months to the end of December were down 0.8 per cent while earnings before interest and tax have been slugged by 25 per cent compared with the previous corresponding period.

The sector is hoping that an interest rate cut in February could provide the shot in the arm needed to improve consumer confidence. Last year analysts had hoped that tax cuts would provide the spur to bring shoppers back.

Even as some experts are hopeful that revenue will improve in the current calendar year, Morgan Stanley, for example, says it is cautious of the potential spending implications of a more protracted easing cycle. It said that while the consumer remains resilient, reliance on promotional activity remains heightened.

The good news is that this week all four of the major banks are now predicting that rates will be cut at the next Reserve Bank meeting which is in mid-February thanks to signs of moderating inflation.

There is a lot riding on that February decision.

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