Australians shun shopping as basic living costs surge

Sydney: Australia's mining boom, which has powered the nation's economy to faster growth than the US, Europe and Japan, isn't filtering down to the country's A$250 billion (Dh933 billion) retail sector. One reason: a national savings rate near a 25-year high.

Shares in electronics retailer JB Hi-Fi Ltd, clothing chain Billabong International Ltd and camping-gear seller Kathmandu Holdings Ltd have all slumped by more than a quarter this month after the companies said first-half earnings will miss forecasts. Myer Holdings Ltd, the nation's biggest department store chain, is shutting a store, reviewing other outlets and moving forward clearance sales.

Households are cutting spending as prices for food and utilities surge amid borrowing costs that were the highest in the developed world until last month. Retailers are responding with discounts of as much as 80 per cent in post-Christmas promotions to make up for disappointing December sales.

"This year has been a very tight Christmas," said Reidell Bragg, 34, an office administrator from Sydney browsing through the city's Queen Victoria Building, a Romanesque sandstone mall built in 1898. "I just can't afford it this year. Rent, bills, everything seems to have gone up."

Significant bill rises

Prices for electricity, water and heating gas have risen 40 per cent in the past three years, and food is 11 per cent more expensive, according to government data. That compares with an 8 per cent gain in the broader consumer price index that includes those components.

Instead of spending at stores, Australians since the 2008 financial crisis have been saving at a rate last seen in 1987. In the September quarter, the ratio of net household savings to disposable income rose to about 10 per cent from 9 per cent in June. By contrast, the US personal savings rate was 3.5 per cent in November, and hit a 19-year peak of 8.3 per cent in May 2008.

The retail slump contrasts with a national economy buoyed by demand from China and India for iron ore, coal and other commodities. Australian gross domestic product is rising at 2.5 per cent per year, compared with 1.5 per cent in the US, 1.4 per cent in the euro region and 0.5 per cent in the UK. The unemployment rate is 5.3 per cent, compared with 8.6 per cent in the US.

The effect was clear on Monday. Australian retailers typically use the post-Christmas public holiday to kick off sales. This year the discounts are increasing.

"I paid cash this year because I don't want to use the credit card," said Luanne Bassan, a 46-year-old housewife from Sydney. "If I don't have the cash, I just don't want it."

Adding to the challenge for retailers is the Australian dollar, which this year reached the highest level against its US counterpart since the end of exchange controls in 1983, making it cheaper to buy from overseas-based websites.

Move online

Online shopping rose 37 per cent in the 12 months ended October and now accounts for about 8 per cent of discretionary retail purchases, Andrew McLennan, an analyst at Commonwealth Bank of Australia, said in a December 8 report.

That trend will probably continue, putting particular pressure on Billabong, Myer, David Jones and clothing retailers who compete with international websites as "consumers are moving without them," McLennan said.

Billabong has dropped 52 per cent this month and JB Hi-Fi 28 per cent, making them the worst performers in the benchmark S&P/ASX 200 index. Kathmandu has dropped 29 per cent, Myer 19 per cent and David Jones 15 per cent.

Major retailers slashing prices

Myer, which has 67 stores, moved forward its clearance sale to Christmas Eve for members of its loyalty programme, and is offering 40 per cent off Samsonite luggage. David Jones Ltd, the second-biggest chain, is dropping the price of Royal Doulton glass sets by 60 per cent. Victoria's Basement, a Sydney housewares store, has marked down products by 80 per cent to clear out inventory.

"It continues to be a very challenging trading environment," Myer CEO Bernie Brookes said in an emailed statement. The Melbourne-based group is experiencing "some good days and some tough days".

Consumer confidence dropped to a four-month low in December as concern mounted that Europe's debt crisis would hurt the global economy, according to a Westpac Banking Corp and Melbourne Institute survey released on December 14. A quarter of respondents said the best use of savings was to reduce debt.