Christmas discounting is set to continue, with pricing expectations among businesses now dropping to their lowest point in 24 years, according to the latest Dun & Bradstreet Expectations Survey.
The survey comes soon after retailers lamented the Christmas and Boxing Day sales period didn’t perform quite as well as all would have hoped.
The latest survey shows the sales expectations index has dropped 14 points to just 19 – the lowest point recorded since the survey started in 1988. At the same time, expectations for inventory levels have also fallen, with 57% of businesses identifying “demand for their products” as the biggest barrier to growth.
The poor expectations are a testament to the lacklustre retail performance over the past few months, as consumers continue to save rather than spend.
However, D&B economic advisor Stephen Koukoulas says one surprising finding – that businesses actually expect profits to increase – gives some hope.
“The fall in selling prices index is interesting in itself, but profit was the one indicator that held up. That seems to be inconsistent, unless you look at input costs.”
With those costs lowering, Koukoulas says, businesses can still maintain profits even when selling prices are lower.
The inventories index has reduced from 24 to 16, although businesses are expecting margins to be sustainable, with expectations for profit increasing.
However, in a disappointing move for business overall, capital investment expectations have fallen from 15 to 14. Employment expectations also remain flat.
Overall, Koukoulas says the Consumer Price Index figures released later this month will provide some insight into whether the Reserve Bank will cut rates – but also says the survey doesn’t necessarily provide insight into whether it should or shouldn’t make a move.
“If there is a rate cut, it’s not a rate cut to rescue the economy. It’ll be a rate cut to reflect the fact that inflation is low.”
The biggest issues expected to influence operation in the March quarter are cited as lack of demand, interest rates, and fuel prices, cited by 42% of businesses. Only 31% of businesses think online selling by competitors will have a small impact on their business – although that’s up by 11 percentage points from last month.
D&B director of corporate affairs Danielle Woods said in a statement the discounting strategy is set to continue for some time.
“These findings suggest that businesses are planning to negotiate the spending slump by extending discounting through the new year and by managing their stock carefully.”
“Although the most recent data has taken selling price expectations to a new low, it is part of a long downward trend that suggests ongoing discounting has become the new normal.”