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Comment: Have CE & Appliance Retailers Jumped On A Discount Monster

According to retailers attending CES 2019 the last few weeks of December were “incredibly” slow in Australia compared to previous years with some observers reporting a 20% or more decline in traffic to retail stores.

But the big question is was whether this was a problem created by retailers and the adoption of a race to the bottom mentality running into the peak Christmas New Year buying period.

In the past the last few weeks of November and up to December 24th consumer electronics and appliance retailers were able to sell products with a decent amount of margin because the demand was there, and history showed that this was the best six weeks of the year to make a profit.

Then someone floated the idea of Clik Frenzy followed by Black Friday on the 23rd of November and as online retailers such as Amazon and Kogan spruiked discounts, CE and appliance retailers jumped in with discounts of their own.

I now believe that these were two dangerous events for retailers who while growing sales are seeing margins eroded due to head on discount battles with the likes of Amazon and competing online and other retailers in the weeks running up to when most CE retailers have in the past made money.

In Australia there is only a small pool of consumers, approximately 25M and 13M households to offer discounts which in some cases were big ahead of a key profit generation period is a clear risk.

According to new research foot traffic at shopping malls and retailers fell an unprecedented 23 per cent in the last week of December, highlighting consumer uncertainty and the shift away from bricks and mortar to online stores.

Those who did shop in stores predominantly purchased products due to the fact that they went into stores armed with information on a product or service due to doing online research prior to shopping and wanted to take a hand on look at the product they were keen to purchase.

James Stewart a lead partner at Ferrier Hodgson, claims weak retail spending is another “unintended consequence” of the royal commission as consumers worried about the value of their homes and small businesses struggle to borrow money cut back on discretionary purchases.

“Mums and dads are now in a situation where they are potentially seeing the value of their house, at least in major metropolitan areas, fall 10 to 15 or even 20 per cent – it’s been more than 20 years since the average Australian has seen the value of their house drop,” he said.

Stewart claims that the unprecedented 23 per cent fall in retail foot traffic in the last week of December highlights the uncertainty among consumers and believes there may be worse to come as retailers are forced to clear higher levels of excess stock and landlords come under more pressure to offer rent support for struggling tenants.

Pessimistic consumers now outweigh optimistic ones, according to the Westpac-Melbourne Institute Consumer Sentiment Index, which fell 4.7 per cent in January to 99.6 points – the biggest monthly fall in more than three years.

According to the Financial Review ShopperTrak, which measures foot-fall in shopping centres, customer traffic fell 15 per cent in the week ending December 23 and 23 per cent in the week ending December 30, dragging traffic for the month of December down 12.2 per cent, well below the 12 month average decline of 2.2 per cent.

“The ShopperTrak data confirmed a lot of anecdotal stories I’d heard from my contacts in retail, particularly in apparel and general merchandise’ ” said Mr Stewart, citing one franchisee whose same-store sales fell 21 per cent in December.

“In my 20 years in retail I can’t think when people had a Christmas like that,” he said.

Retailers such as Harvey Norman have already moved to borrowing additional money, Bing Lee is reporting a fall in profits and other retailers are eating into cash reserves. Major online discount battles which do shift stock are not necessarily good for bottom line profits as US retailers who are now shutting up shop have found out.

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