Kmart and Target boss is dreaming of an ‘awesome’ Christmas in spite of economic headwinds

It’s been a tough year for households and that is why Kmart and Target’s boss believes Australians will spend a little extra to spread the Christmas cheer.

Kmart Group managing director Ian Bailey.

If ever there were a Christmas Australians were anticipating in order to forget their troubles, this should be it, says Kmart Group managing director Ian Bailey.

A year of rising interest rates, inflation, petrol at more than $2 a litre and the threat of war in the Middle East are struggles most Australians would want to put to the back of mind.

“There are a whole bunch of topics, things we’re all experiencing, and I think one of the universal things is Christmas is a moment in time … in the year where you sort of put all that behind you,” said Mr Bailey, whose company’s stablemate is Target

“And it’s a time for a lot of us where we get together with family and it’s a special time of year where I think people just want to have a really good time and find a way to preserve that.

“So I think under all scenarios it is going to be an awesome Christmas.

“What will be on people’s minds? I think they’re going to want to make sure they preserve that, so I think they’re going to want to have a really great time with their family – but there is less money around than there was in previous years.

“So therefore, I think people are going to be very smart and very focused around where they can get the best value for all the things they need to make Christmas wonderful.”

For the nation’s $420bn retail sector – the largest private sector employer in the country – these are nervous times as stores take bets on what Christmas spending will look like and hence how much stock to have on their shelves and in their warehouses.

Recent household savings data has revealed that the saving ratio dipped to 3.2 in middle of the year from 3.6 per cent, as higher mortgages, rents and other basic cost-of-living expenses eroded savings. As a comparison, between 2016 and 2020 the household savings rate was bumping around at 5 per cent, and through the worst of the Covid-19 pandemic it shot up as high as 23.6 per cent.

Furthermore, RBA analysis shows that about one in seven households with a mortgage were already cashflow negative in July where essential expenses, including private health insurance, school fees and mortgage payments, exceed household income.

For those homeowners with a mortgage this Christmas comes with the sting of steeper repayments. Likewise for renters, with higher petrol prices touching not just the pockets of drivers but all consumers as oil splashes all sections of the economy.

Mr Bailey said there was strong demand for housewares and home products that would enable families to do more entertaining within the home.

“There‘s a lot around ‘home’. And not just Christmas decorations, which of course is always big every year and we aim to deliver unbelievable value in those areas, both at Kmart and Target, but it’s not just that,” he said.

“It is also about the fact you get a lot of visitors. So we actually sell a lot of bedding, we sell a lot of kitchen and dining, we sell a lot of glassware because you know people are actually getting ready to entertain and have family come and stay. So home is a big category.”

This is a theme picked up recently too by Coles chief executive Leah Weckert who believes cost of living expenses and diminishing household savings will see many people do more cooking and entertaining at home this Christmas.

“But it does feel to me there is a lot of ‘at home’ every year,” Mr Bailey said, “because it is just practical if you have got a lot of family, a lot of kids, going to a pub or restaurant is not that easy.

“It’s a lot easier to have the kids running around a garden or doing stuff at home so I feel the home is the centre of Christmas and I think it will be true this year just as much as any other.”

He said Kmart and Target were watching the demographic trends that flowed through its twin retail businesses and he had noticed a more pronounced broadening of the customer base that now stretches across all income levels – not just the traditional base of low and middle-income households.

“What we are seeing is increased spend with us across all income levels, but especially so and to an even greater extent at the higher income levels,” he said.