Deck The Malls

The Age

Saturday November 11, 2006

Rebecca Urban

'Tis the season to be overloading credit cards as the spirit of giving invades the hearts, minds and wallets of shoppers. But December trading can make or break retailers, writes Rebecca Urba

IT STARTS slowly. You spot a rack of Christmas cards at the local newsagency in mid-October and quietly grumble about how it's far too early to start thinking about that time of year again.

But then it builds. By November mince pie displays are popping up at the supermarket and commercials advertising tree trimming warehouses are bleating out across radio airwaves. Suddenly, red and green-bordered catalogues are being stuffed in the mailbox and you're taking clippings of the latest must-have MP3 player or celebrity cookbook to add to the shopping list.

It's still more than 40 sleeps until Santa Claus comes to town but already high-end department store David Jones has declared itself open for Christmas trading. Today, thousands of people are expected to flock to the city for the return of the Myer Christmas parade along Bourke Street, which will culminate in the unveiling of the store's legendary window display by Lord Mayor John So and former Miss Universe Jennifer Hawkins.

For retailers, pre-Christmas trading is critical. It's the season of supposed goodwill and generosity; when shoppers disregard mounting credit card bills as they're lured deep into department stores by beautifully packaged cosmetics gifts and lavish food and wine hampers.

Australians spent a record $22.5 billion last December, with most of that going towards food ($8.2 billion), followed by household goods such as kitchen appliances, electronic gadgets and music ($3.4 billion), department stores ($2.4 billion) and clothes and soft goods ($1.6 billion). While trading in November is also typically strong, retail turnover can jump 25 per cent once December hits.

Women's clothing chain Sportsgirl has reported that the average purchase per customer jumps from two or three items each visit to three or four items during December.

The impact of Christmas is even more noticeable at David Jones, where average unit sales per customer doubles.

"It's an incredibly important time of the year ... where they're probably getting around 40 per cent of earnings, and in some cases 50 per cent of earnings, coming in," said Michael Baker, research director at Urbis JHD. "And for the specialty gift stores it can be as high as 100 per cent."

Despite widespread fears about this week's decision by the Reserve Bank of Australia to again lift interest rates, economists appear relatively unconcerned about the likely impact on consumer spending.

The message that they're sending is that it will be a good - but not great - Christmas for retailers.

"I don't think Santa's sack is going to be overflowing but we won't be missing out altogether, either," said CommSec senior analyst Grant Saligari.

"Some of the more discount-oriented retailers can benefit at times of a rate rise because people trade down ... so you could see stores like Target do reasonably well.

"But even at the other end, stores like David Jones have got a demographic that are generally less affected by these sorts of changes."

The Australian Retailers Association had urged the Reserve Bank to keep rates on hold, arguing that retail spending had softened in recent months. Retail turnover nudged up slightly in August and September and sales volume growth continues to trend below the 10-year average.

ANZ senior economist Mark Rodrigues said any impact of the latest interest rate hike should be viewed in the context of historically low unemployment and falling fuel prices, both of which bode well for spending.

Research by ANZ has shown that every time the RBA raises the official interest rate by 25 basis points, household disposable income is slashed by $2 billion. However, a 20? drop in the price of petrol over an eight-week period has the effect of increasing household income by $3.5 billion.

"There's no doubt retailing conditions have deteriorated over the course of the year," Mr Rodrigues said. "It's going to be a competitive and tough retailing environment over the Christmas season. But it isn't all doom and gloom."

Regardless of economic conditions, a customer stampede doesn't just happen. And smart retailers start preparing for Christmas trading early.

At Myer, last year's Christmas trees were barely being dismantled when the buying team began scrutinising the season's sales data.

Store manager Chris Slade said buyers in some divisions were placing orders as far ahead as 12 months to ensure demand would be met the following year. By mid-year stock starts to arrive and by the end of August individual stores were being shown the season's new stock, he said.

Trend-spotting at Christmas is also crucial. Book store Readings, which estimates 20 per cent of its annual sales are made in the first three weeks of December, publishes a summer reading guide each year to promote the books it expects will top shopping lists.

Martin Shaw, who manages the store's books division, said sales were typically driven by books that had already received a lot of press, with this year's candidates likely to be Chris Masters' Jonestown, The Unknown Terrorist by Richard Flanagan, and the recent Booker prize winner, The Inheritance of Loss.

Cookbooks and satire also did well, and ensuring that there was enough stock to meet demand was crucial because re-ordering in the weeks leading up to Christmas could be near impossible, he said.

"There's nothing worse than having something in the guide and miscalculating on the ordering," Mr Shaw said. "Last year the hit cookbook The Silver Spoon took everyone by surprise. Everyone ran out."

JB Hi-Fi boss Richard Uechtritz agrees. Following shortages of the phenomenally popular Apple iPod in past years, he sought assurances by the distributors that there would be plenty of stock available this year. "The most important thing is making sure we have the stock to reflect the demand," he said.

JB Hi-Fi will start rolling out Christmas stock next week, with new release video games and consoles, CDs and DVDs, digital cameras and music players, computers and other electronic gadgets to occupy shelf space. It is an offering that has driven the company's recent fortunes and made it one of the best performing retailers on the sharemarket.

Rampant demand for technology-driven products has also propped up the earnings of fellow retailers Harvey Norman and Clive Peeters as well as major department stores. And industry experts say that the cycle has yet to peak.

So it's no surprise that Mr Uechtritz is looking forward to Christmas.

"If you look at the lists that come out each year of the top 10 Christmas gift items, you'll find six or seven of those at JB Hi-Fi," he said. "And this year's no different."

Michael Baker, of Urbis JHD, would like to see retailers making better use of gift cards, also known as vouchers, to generate sales.

In the US, about 12 per cent of holiday sales were generated from gift cards, and surveys had revealed that what people wanted most for Christmas was a gift card from their favourite store, he said.

"What people do is they take a gift card, go into the store and often put it towards something that costs more than the card itself," Mr Baker said. "They're an incredible tool for generating sales above the face value of the card."

Shopping centres go to great lengths to create a festive environment that encourages customers to part with their money. Westfield boasts that it takes 55 kilometres of extension cords and steel cable to hang the 1.7 million lights, 444,000 baubles and 66,000 bows that now adorn its Doncaster mall.

Chadstone Shopping Centre launches Christmas with a VIP shopping evening later this month. It also encourages individual stores to do the same to help stimulate sales.

David Jones has this year unveiled a new Christmas theme for its stores. And while the typical shopper might not even notice, group general manager of stores Paul Zarah said there was a complete philosophy behind the change sparked by the emerging fear that has resulted from a global focus on terrorism and war.

The department store has adopted several icons - a heart, dove, evergreen tree and a star - that it will use to symbolise the spiritual side of Christmas throughout its promotional material. It has also discarded the signature silver and blue colour palette of recent years in favour of berry red.

"It's a reflection of an international trend towards warmth and security," Mr Zarah said.

"Christmas is a commercial entity to us as retailers, but it is also an emotional time for everyone. And we're very conscious of the role we play in bringing Christmas to the community."

Despite the consumer boom of the early 21st century - when retail sales volume grew about 6 per cent a year - having well and truly subsided, shopkeepers remain relatively confident heading into Christmas.

Harvey Norman chairman Gerry Harvey recently said that he was expecting the best Christmas ever, while David Jones managing director Mark McInnes could barely contain his cheer when asked by reporters recently whether early signs were pointing towards strong pre-Christmas trading. Bill Wavish, chairman of the recently privatised Myer, has been making similar noises.

Mr Baker's assessment is slightly more measured.

"Retailers around this time of year are usually a pretty optimistic bunch because it is such a big time of year for them. They're really pumped up," he said.

"But we'll get more of what we've been having this year, which is very modest growth."

Billion-dollar predictions aside, for the real story on prosperity this festive season keep an eye on the share prices of publicly listed retail companies. Strong sales typically leads to earnings growth, which in turn should lift share prices. Meaning a very Merry Christmas for retailers and investors alike. Or not ... it could end slowly too.

© 2006 The Age

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