Articles

Will Retail Stall On Negative Energy?

The crystal ball gazers often make aggressive forecasts of retail’s imminent demise. Not one of these glorified soothsayers have been held accountable for their ‘tea leaf reading’, despite being wrong now for more than 17 years. Many pull all sorts of disparate data (some even have the hide to call it research) to provide ‘apparent evidence’ that supports their mystical prophecies. The most often quoted is consumer sentiment and yet there is no correlation between how people say they feel about the economy or their intended expenditure and ABS data for all retail sales (see ABS 8501.0 Retail Trade Australia).

For the past 17 years sentiment has gone up and down but sales have continued to climb. Sure, the make-up of the expenditure has changed (as distinct from overall gross sales) but in truth consumers spend when they are happy and spend when they are sad. You can buy to celebrate and you can buy to commiserate or even cheer yourself up.

The rational indicator of expenditure is a very simple one. Consumers spend to the level they perceive they can service. So in an environment of steady employment, steady CPI growth, steady household income growth and low inflation, sales growth is…. steady. Not boom-bust heady, but steady. And with house prices continuing to rise, the perception of debt burden and ability to service continues upwards.

The only things that can stall retail sales are major impacts on consumer’s perceptions to service their purchase imposts. Which is why the energy issue is a double negative for the retail industry. Not only will it create a major impact to a retailer’s cost of doing business at a time when margins are thin and other costs are increasing, but – if the signalled price increases materialise at the domestic level – it could seriously impact consumer’s disposable income.

Politicians mishandling of the energy sector has deep roots. For much of the last 100 years the sector had been under-invested under government ownership when coal based power made it cheap and easy. As soon as the cracks appeared, the problem was outsourced to private enterprise. Already burdened with the high cost catch-up of modernising an ancient system, the sector was then hit with the hysterical and polarised debate on climate and the unrealistic speed of migration to twenty first century energy generation – much of which was theoretical.

We are now faced with massive price rises, potential energy shortfalls leading to blackouts and an un-cohesive approach to resolution that makes it impossible to move quickly. If energy costs at both a retail and household level jump by “anything up to 80%” as has been quoted and supply – even at these costs – is not guaranteed, this will have a major impact on retail.

This is an issue that retail needs to be championing loud and clear to the media and politicians to exert as much pressure as possible to form a united view that can be pragmatically acted upon with haste. Both retailers and consumers need to have confidence in their ability to service their expenditure. As previously stated, it is our perception of our ability to service expenditure that really affects the growth of retail.