Down down as shoppers slow spending

Listen & Read Ross Greenwoods conversation with Michael Bate, Head of Retail at Colliers International, talking about the stalling of retail spending growth

Retail spending turns down

Ross Greenwood: I do want to take you to something else right now and that is retail sales because while the economic growth numbers seem to show signs of some pick up in the economy. Last night we spoke on the program with Treasurer, Scott Morrison and he was saying while it’s now our 27th continuous year without a recession that’s happening and there are good signs out there.

We did also tell you about something of a problem in terms of households. Clearly, wages are not moving and because wages are not moving households are feeling more of a pinch especially as gas, electricity, private health insurance premiums, kid’s education costs start to rise and rise much faster than inflation. Then, you come out to the retail sales numbers today and they were dead flat month on month.

Now, this is not necessarily a great sign. Department store sales, again, are, well, down though, we are to be honest still eating plenty and we’re eating out quite a lot as well. Let’s try and get some interpretation as to what this all means. The head of retail at the real estate agency, the big one, Colliers International is Michael Bate. He follows retailers more closely than just about anybody in this country. He’s on the line right now. Many thanks for your time, Michael.

Interview with Michael Bate, Head of Retail, Colliers International

Michael Bate: Always a pleasure, Ross.

Ross Greenwood:  All right, let’s go to this. Say, you suddenly saw that the retail sales on a seasonally adjusted basis are flat. It’s not a great look and does this mean in your eyes or in the retailer’s eyes that really some of this wages or lack of wages growth is starting to catch up with the economy?

Michael Bate:  It certainly is and I think that today’s numbers has gone against just about every analyst and about every economist in the country’s trend. We’re predicting that July would continue but from the good gross numbers that we saw coming through in April, May, June this year. I think the real surprise though is, in your intro, it helps although good, I was very surprised to see a drop in that. I think that that’s one of the barometers that’s going to impact the analysts going forward. To again say that the housing activity is easing and that’s a good barometer from last month.

Ross Greenwood:  One of the things you would say and I also spot this as well, it used to be part of the insolvency practitioners, basically, they say that they are fearful that there could be almost a thousand retailers on the brink of going broke in Australia. One of them, they claim has got sales of more than a billion dollars? That there are others out there with sales of more than $500 million that they say are tethering on the brink right now. This looks pretty serious stuff for retailers right now. In regards to what you’re seeing out there, where are the pressure’s coming from? Do you believe those same pressures that you’re seeing are actually what organizations like SP Partners are saying?

Michael Bate:  The SP Partners’ report from last month was, I agree was a very scary report and to think that there’s another term. I agree with them. I think that for the next couple of months, we’re going to see probably a lot more merger and acquisition activities, a lot more M&A activity, rather than default, but the figures that we’re seeing through just in our portfolio across the country which now is in existence, about 200 old shopping centres. Apparel is still serving and it’s serving in a very big way. The department store, the discounts department stores and everybody going early this year in the half-yearly clearance, has had a very big impact on the July figure. While June was healthy, it was the July figure because everybody went early, that suffered this year.

Ross Greenwood:  Okay. Then we go to a second aspect of this. If those retailers are hurting, is this something that’s happening in the economy to the shopper? In other words, they’re tight for cash or is it something that’s happening structurally inside the retail landscape of Australia because of the new competitors would seem coming from overseas because of online shopping? Because of the fact that people, if they wish to can buy clothing from overseas now?

Michael Bate:  Correct and it’s not just unique to Australia. This is a global trend. If I talked to our offices through Europe or through the States, they’re all saying the same thing. The domestic brands unique to those countries or to those regions are all having problems with their bricks and mortar figures. As you can see from today’s figures, it’s coming through in such a haphazard way. That’s the thing that really puzzles me. I really thought that we would see growth again in July.

Ross Greenwood:  It’s interesting because Mike-

Michael Bate:  If you ever let consumer’s sentiment on it though, this is the real underlying message. Consumer’s sentiment is really driving these negative figures today.

Ross Greenwood:  -because even some of the profit figures we’ve seen come out from the retailers in recent times and some of the clothing companies haven’t been flat. The big retailers especially the department stores have clearly not had great numbers in these past six months. Then you’ve got organizations that we’ve spoken about here in the program a few times like Specialty Fashion Group that owns Katies and Rivers and a whole bunch of other stuff like that. Millers, they’ve got as well. Seriously, the earnings result was very, very poor. That’s the best way I could describe it. This is where, you see, when you get down into that cheaper discount into the marketplace, it is a very, very difficult place to be right now.

Michael Bate:  It certainly is and I think, back to your question about is, I think that the SC report from last month is on the money. We’re probably going to see a lot more mergers than default but the next couple of months are going to be very, very risky. The real one is August. If we dip again in August, the economists and the analysts are going to have a bit of a rethink on where we sit.

Ross Greenwood:  There’s no doubt about it. I’ll tell you what, Michael, by the way, it’s great to have you on the program, the head of retail at Colliers International. Now, because Colliers is quite clearly, buy and sell a lot of these retail properties, but also, they see what’s happening inside the rent rolls of many of these big property owners as well. I got a very, very good feeling as to where the markets are moving right now. From your point of view, my point of view, what’s those next retail numbers come out because if they pour, it really is genuinely a sign that maybe parts of the economy are really slowing up. Michael Bate, as always we appreciate your time here on the program.

Michael Bate:  Pleasure, Ross.

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