Companies that let their inventories run low are now importing stock and getting ready for a much better Christmas, report experts in the SME sector.
But they also warn that struggling companies will lose orders to companies that offer a wider and better range of goods.
The trade deficit blew out in July with a 4% rise in imports. Imports of consumer goods rose 2%, buoyed by government stimulus handouts and low interest rates. Retailers are also boosting inventories with imports, says Westpac senior economist Anthony Thompson. Intermediate and capital goods imports also rose 5% as businesses brought in equipment.
While economists argue about whether the increase in consumer and capital goods imports will last, those close to the SME coalface say momentum is returning.
PWC partner, Gregory Wills, says that confidence is definitely on the rise. "The end of the financial year was a trigger. And I think the end of the calendar year will act as another one."
He says many companies hit the downturn overstocked and they tried to get rid of excess stock through price discounts. "But suddenly they are concerned they will not be able to fill orders and so they are ordering more stock in preparation of rising demand."
He says that at times of uncertainty customers look for value. "Companies know that if you can go to a client and say we have a better quality product even if the price is comparable a customer will be open to switching."
He advises companies to increase their advertising and marketing. "They should have done more in a downturn anyway, as clients want to know that businesses are still around and doing well. If you can give them a strong reason to buy, they will."
Greg Hayes, from Hayes Knight, says that smart company owners have been managing their inventories much more closely.
"A number of clients had been running their stock right down. By reducing the level of stock to free up liquidity, they risked being able to access stock when they needed it. Now that confidence is coming back, they don't want to risk missing a sale."
He says not only are they ordering in more stock but seasonal factors are changing the type of stock they are ordering.
They are bringing in spring and summer stock plus early Christmas stock, especially stock that has to be made up into something or packaged up.
He says many of the strong businesses are becoming very predatory.
"They have a positive view and they know that if they buy in stock they'll have a competitive advantage. They can go and say ‘we have a better range' or ‘we've got more stock, so switch over.'"
Hayes says he noticed activity increasing four weeks ago. "People who have deferred projects are pressing the green light so the companies are responding.'
He says just in his industry he has noticed a pick up. "Services around tax structures, due diligence, business plans for mergers and acquisitions are all picking up."
"Traditionally you would expect a lot of those transactions close off at 30 June so this warms the heart."
However Hayes has a stark warning for struggling companies. "Plenty of them will still fall over in the next six months. The gap will grow between the predators as they prepare for the recovery and the strugglers."
Much of the recovery will also rely on banks agreeing to the funding plans put to them by SMEs. And there is even some good news there. Sue Prestney, partner at MGI Boyd, says there are the first signs that the banks are looking more positively at new proposals.
