Economy

Business expecting more discounts this Christmas, but profits and employment in the firing line

Engel Schmidl /

Retailers hoping for some yuletide relief will be disappointed this Christmas, with many saying they intend to boost foot traffic with continued discounting, according to the latest figures from the Dun & Bradstreet Business Expectations Survey.

Much of the pre-Christmas activity seems to be online, with NAB’s new figures showing a 22% year-on-year increase for digital spending in September.

The results of the survey are disturbing considering the lacklustre holiday performance in business over the past few years, especially in retail where severe discounting has led to several collapses.

The Dun & Bradstreet survey shows 49% expect sales to increase over Christmas, with the index now at 33 from 11 last year. And expectations for inventory levels have risen to the highest point since 2000, with 38% saying they expect to boost inventory.

The impact can be seen in the profit expectations – one in five companies expects profits to fall during the December quarter, and retailers specifically have stated their profit expectations are 14 points below other industries.

As Dun & Bradstreet chief executive Gareth Jones points out, many companies are being forced to discount much more than before the financial crisis.

Cheap prices have now desensitised customers.

“For businesses heavily exposed to consumer spending, particularly non-essential spending, it’s difficult to get stock moving off the shelves without a price cut.”

“Consequently, while businesses are expecting an uptick in sales numbers over the Christmas period, they are alert to the fact that discount campaigns will negatively impact margins and overall profit.”

Employment will take a hit as a result of all this, with staff levels remaining flat all the way through Christmas.

D&B economist Stephen Koukoulas said the survey is good news, but not so when it comes to job creation.

“This suggests that despite more favourable sales expectations, job creation and the unemployment rate are likely to be stable around recent levels.”

Meanwhile, online retailers will be experiencing a different story altogether with NAB figures showing a 22% boost in sales in August.

That follows a 25% boost in July.

The numbers show online shopping accounted for $11.9 billion of sales during the 12 months to August, equal to 5.4% on traditional retail spending.

As NAB points out, the growth in online has been stronger than in traditional sales, with the latest Australian Bureau of Statistics figures showing overall sales growth slowed to just 1.6%.

The figures come after a number of prominent retailers including Myer and David Jones posted their own results, with many not disclosing how much money they’re making online – despite a number of these businesses promoting multimillion dollar “omni-channel” strategies and restructures.

 

 

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