Woolworths sees no respite for struggling Australian retailers

    Woolworths sees no respite for struggling Australian retailers

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    Australia’s largest retailer sees nothing that will loosen consumers’ tight-fisted shopping habits as another tough year looms, reinforcing dovish commentary from Australia’s central bank.

    Woolworths, which matched analyst forecasts with a 4 percent rise in fourth-quarter comparable food and liquor sales, said all retailers should brace for a difficult 2012.

    “It’s going to be a tough year for retailing and those that wish to do well will have to be on their best game,” outgoing Chief Executive Michael Luscombe told analysts and media on a conference call on Wednesday.

    “I’d be very surprised if anyone came out and said they were looking forward to a really buoyant year in sales next year in Australian or New Zealand retailing. There’s no good news on the horizon that might change the saving and spending habits of consumers,” he said.

    Australia’s weak retail picture contributed to a shift in rhetoric from Australia’s central bank this week to abandon talk of higher interest rates.

    Australia has kept interest rates unchanged since raising borrowing costs to 4.75 per cent in November, a hike that has been blamed for exacerbating the fall in consumer confidence.

    RATE CUT POTENTIAL?
    Financial markets have long taken a more bearish outlook on Australia’s economic outlook than policy makers, pricing in at least one rate cut by year-end amid weak retail and consumer indicators.
    Consumer confidence slid sharply in July to a two-year low while retail sales for May suffered the biggest fall in seven months.

    Last week, top department store warned of an “unprecedented” worsening in sales, slashed its profit forecast and said there was no relief in sight for the industry.

    The retail environment was highly competitive and challenging and weaker spending continued as consumers chose to save in fear of higher mortgage, petrol and energy costs, Woolworths said.

    “This next year in retailing is going to be one of the most challenging. I’ve got no illusions that it’s going to be any walk in the park,” said Luscombe, who added that he had no regrets over retiring from Woolworths after September as “34 years is well and truly enough.”

    Luscombe will be replaced by Grant O’Brien, the firm’s chief operating officer for food and petrol business.

    “CONSUMER COCOONED”
    Shares in Woolworths, which stood by its downwardly revised January forecast for 5-8 per cent net profit growth for the year just ended, rose 0.7 per cent to A$27.44, underperforming the wider market’s 1.6 per cent gain . The stock has rallied from it lows below A$26 in March, helped by the view that its supermarkets business will hold up better.

    “It is a difficult climate. Consumers are still in their cocoon. The outlook’s tough overall as we move into 2012,” said John Manning, analyst at the Royal Bank of Scotland. “Investors are better to position themselves in the non-discretionary side of the equation, and that is firmly in the court of Woolworths.”

    Supermarket sales held up better than Woolworths’ discretionary businesses, including discounter Big W, which has been hurt by the cautious consumer mood that has dampened retail spending for a year.
    Same-store sales at Big W rose 2.8 per cent in the fourth quarter and fell 2.5 per cent for the year.

    Many other retail shares are below March lows, including David Jones and department store Myer, which hit an all-time low this week.

    Woolworths said average prices fell 3.6 per cent in the second half, excluding tobacco, after a 4.3 per cent decline in the first half, due in part to rival Coles, owned by Wesfarmers, cutting prices in a fight for market share.

    Source – Reuters