Retail sector bears the brunt of economic slowdown

Consumers have shut their wallets in the wake of the global financial crisis, and retailers are bearing the brunt.

Consumers have shut their wallets in the wake of the global financial crisis, and retailers are bearing the brunt.

Clothing retailer Noni B, electrical goods giant Harvey Norman and car dealer Automotive Group Holdings all warn profits were likely fall in the 2008-09 financial year, while diversified manufacturer Pacific Brands, owner of retail brands such as Bonds, Hard Yakka and Holeproof, says profits would be flat at best.

Harvey Norman executive chairman Gerry Harvey told The Australian  that retailers are holding off payments to suppliers in a bid to weather the storm.

“Harvey Norman is paying its suppliers on time, but there are a lot of retailers out there who are doing it tough and are pushing back their payments,” he says

“I talk to my manufacturers all the time and they tell me that some suppliers have stopped supplying to some retailers because of late payments.

“Late payments are affecting all kinds of retailers all over Australia _ just talk to shop owners, many of whom have only 60% to 70% of stock on their shelves.”‘

Pacific Brands chief executive Sue Morphet describes the market as being as nervous as she has ever seen it.

The company has also been buffeted by the sagging Australian dollar, as many of its goods are made overseas in low-cost centres such as China.

But in a lesson to all business owners struggling with the downturn, Pacific Brands is refusing to cut its marketing and advertising budget as the downturn bites. “It’s not a time to be saving money in that area,” chairman Pat Handley said at yesterday’s annual general meeting.

Noni B says it will not meet its profit target of $6.5 million to $7.5 million for the 2008-09 year. Managing director David Kindl says the company is taking measures to cut costs and boost sales, but has not ruled out job cuts if the environment worsens.

Earlier this week, Automotive Holdings Group reported a 30% slump in profit in the three months to September thanks to tighter margins and lower consumer spending.

But while discretionary retail spending has virtually stopped, the more reliant supermarket chains continue to post comparatively strong results.

Woolworths recorded a 9.6% rise in sales for the three months to 5 October while South African-owned grocery chain Franklins also impressed, reporting a net profit of $573,130 for the six months to 31 August, compared with a loss of $6.7 million in the previous corresponding period.

If there is some hope on the horizon for the retail sector, it is the Christmas period, where spending will be turbo-charged by the Rudd Government’s cash handouts to low and middle income earners.

JP Morgan retail analysts Stuart Jackson expects the sector to get a boost from the stimulus package.

“The timing of receipt of the payments, just before Christmas, and the payments being in a lump sum, are two clear positives for retailers. As a result, we suggest most of this will get spent,” Jackson says.

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