The downturn pain is spreading: Gottliebsen

During the last 24 hours I have rung around a number of businesses and widened my reading to get a feel for the downturn.

During the last 24 hours I have rung around a number of businesses and widened my reading to get a feel for the downturn. The patterns are not uniform across all industries. Solomon Lew believes that the current slump in retail sales is an ideal time to lift his market share, which is why he is going for Just Group. If you have a strong balance sheet then now is the time to move.

Clothing and textile buyers say that Chinese prices as expressed in US dollars are rising almost daily, although the higher Australian dollar helps lower the retail impact. But the Chinese have much less pricing power when exporting to the US because demand has slumped as American retailers in the discretionary spending sector face a very tough time. There have been widespread factory closures in China.

Inside Retailing reports that higher petrol prices in the US are causing Americans to use their cars less, which in turn is generating less impulse shopping. The sharemarket has knocked Westfield stock back a few pegs because there is little doubt that there will be more bad news from the US. The lower retail sales have lead to a reduced need for transport, hence the falling sales of trucks.

In Australia, Toll Holdings reports that it has been able to recoup higher costs via prices, but not all transport groups have been able to do this and the order books for diesel trucks have been extensively cut back by operators who can’t recover their margins.

A lot of the cost pain in the retail supply chain has not yet passed into consumer prices but it is getting much closer. Right now the demand for big screen televisions is very strong because of the Olympics, but the industry expects a sharp reduction in demand after the games.

In television the international television screen suppliers have been ambushed by Australian retailers and look forward to the day when there is greater clout among suppliers. Some of the really well managed companies have surprised investors with their earnings – JB Hi-Fi, Country Road and Flight Centre are all good examples.

Lots of companies are putting off software and technology expenditure as they try to husband cash. Banks are much harder to deal with and they know they have the upper hand so can be aggressive.

NSW is our most depressed state. Cars sales in NSW were down 3% in the three months to 30 June, but they were up in Victoria where many prestige car buyers brought forward their orders to beat the surcharge.

Advertising agencies in NSW have been ravaged by the fact that Commonwealth spending on advertising has been slashed to virtually zero. However it is likely that the Government will advertise its carbon policies.

Home owners with a big mortgage and children are now budgeting their expenditure in a way not seen for a long time. Some schools drawing children from outer suburbia report canteen sales are down 10%. It is a lot cheaper to cut a lunch for little Johnny and Sally.

This article first appeared on Business Spectator.



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