The Christmas Grinch of retail

As Christmas approaches, those jingle bells are jingling and, once again, cash registers are ring, ring, ringing.

It has been a tough retail environment this year, with the collapse of Retail Adventures and Retravision highlighting the bumpy ride for retailers in 2012.

But respite is in sight for retailers, according to a report released this week by Deloitte Access Economics, which predicted that for the first time in three years the macroeconomic environment is providing retailers with an opportunity to make some money this Christmas.

With interest rates slashed, wages growth solid, house prices stabilising, and consumer confidence picking up, Deloitte says consumers’ appetite for spending has been stronger in 2012 than it has been for some time.

“For retailers, it won’t be the Christmas of their dreams, but it may provide them with a vital ingredient which has been missing over the previous two years – decent cash flow,” the report states.

Retail trade growth over the year to December 2012 is expected to come in at 3.7% in real (inflation adjusted) terms, and 4.4% in nominal terms, which Deloitte describes as “a sound outcome by recent standards”.

However, the Grinch in the happy Christmas retail tale is what’s waiting around the corner next year.

Industry veteran Gerry Harvey has warned that while Christmas may be a bright spot for many retailers the aftermath will be poor.

Harvey says while there have been plenty of retail collapses, “there’s plenty more to go”.

While Harvey may be particularly pessimistic (although not about Harvey Norman’s performance), there’s no doubt there are some retailers hanging on until Christmas, heavily dependent on hitting high sales targets over the festive season.

Some of those retailers may be tempted to discount to increase sales, with Deloitte predicting almost a third of retailers will discount in early December, but the downside of that will be the compressed margins which will hit the balance sheet post-Christmas as well.

Without being Grinch-like, discounting and the emphasis of the Deloitte survey on the festive period only means it’s hard to take too much comfort from it.

Savvy retailers will already be thinking beyond Christmas and even beyond the Boxing Day sales.

For retailers, the key is going to be what happens after Christmas and, for now, the focus needs to be on Christmas profits rather than just Christmas sales.


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