Harvey Norman’s latest numbers were a shocker with the big CE and appliance retailer reporting a 34.7% drop in net profit after tax to $352.45 million in the 12 months to June 30, now Deloitte in their latest retail report are claiming that retail trade data for the June 2024 quarter has effectively marked a return to retail recession conditions with several retailers telling ChannelNews “We are already in a recession”.
Deloitte claim that following the latest results, retailers are ‘trudging through a repeat of 2023 retail weakness, but a better outlook is starting to peek through’.
In six of the last seven quarters, real retail spending has declined they claim.
On a per capita basis the statistics only look worse.
Real per capita retail spending has contracted for the last eight quarters and is now 2.5% lower than June 2023 and 6.3% lower than June 2022.
Harvey Normans decline was felt most in the first half of the year, in which profits plummeted 45.7%, before picking up in the second half, during which profits rose a modest 1.9% compared to the second half of FY23.
Total systems sales revenue, comprising Harvey Norman’s overseas company-operated sales revenue and aggregated Harvey Norman, Domayne and Joyce Mayne franchisee sales revenue in Australia, were down $330.79 million to $8.86 billion.
The dire indicators being rolled out by Deloitte, are consistent with the poor state of the Australian economy with the Federal Labor Government now facing tough questions about their economic policies.
GDP growth is slow, labour market weakness is becoming more apparent (particularly in consumer facing industries such as Retail and Hospitality), and business insolvencies are rising – the number of companies entering external administration for the first time increased by 44% in July 2024 when compared to July 2023.
Retail has been particularly hard hit, with negative growth of 0.6% in real spending over the year to June. Consumers have continuously gravitated towards mid-year sales and good discounts, putting pressure on retailers to discount or risk losing business. Over the June quarter Household goods was the strongest performer in volume spending, thanks to heavy discounting, though this came at the expense of other retail categories including CE which has seen a slump in TV sales and in the appliance market.
Currently cost of living relief is being rolled out to households in the form of energy bill relief, and tax cuts have boosted household disposable income with the likes of JB Hi Fi benefitting by taking share away from Harvey Norman.
Stronger sales at JB Hi-Fi have fuelled the hopes of distributors and suppliers that a prolonged period of weak consumer demand is coming to an end.
Sales at JB Hi Fi including The Good Guys down 0.4% to $9.59 billion in the 12 months to June 30. Profits fell 16.4 per cent to $438.8 million, half that of Harvey Norman.
JB Hi Fi results and 16% per slide in earnings to $647.2 million were better than expected by the market resulting in their shares climbing 13% this month.
Harvey Norman shares fell 6.4% following the release of their results and are down 4.7% this month.
Deloitte claim that period from now to Christmas is still expected to be a difficult one for retailers, but perhaps less painful than it has been.
“As with most horror sequels, the characters are generally more prepared, and the plots generally more predictable” they wrote in their retail report.
Retailers are getting used to seeing a consumer group that is mostly cautious and value conscious, but where a cohort (generally older and mortgage free) does still have money to spend they claim.
A tight focus on cost control, and periodic swings to discounting, remains the mantra. Technology investment is being further explored to drive efficiencies, with retailers’ hiring intentions dropping back.
Looking forward, we still anticipate cost of living support and moderating inflation to stimulate higher levels of consumer confidence and stoke consumer spending. As a result, ‘retail recession – the sequel’ should be short and shallow. 2025 and 2026 are expected to show further improvement and a return to more solid growth. Real retail turnover growth is predicted to strengthen from -0.3% in 2024 to 1.5% in both 2025 and 2026.
Stronger real retail sales growth will also be supported by price moderation, as broader inflation tracks down. Retail prices may move from above normal gains of 4.3% in 2023 and 2.8% in 2024, to more normal price growth rates of 2.6% in 2025 and 2.4% in 2026.
