Friday, 18 April 2008

Signs of Retail Weakness in Australia

Evidence is mounting that the Australian retail picture is softening. Seasonsally Adjusted Retail sales fell slightly in both January and February. Now we are seeing evidence of retail companies coming under pressure:

Shops struggling as interest rates halt spending

TWO major retailers are on the brink of collapse thanks to sustained Reserve Bank interest rate hikes which have knocked the economic life out of our suburbs.

Sporting goods and apparel chain Paul's Warehouse is facing a nationwide shutdown while furniture retailer Dare Gallery is battling to find a rescue funding package.

Both have been handed over to administrators. They blame their problems on a slowdown in sales caused by higher interest rates.

White goods manufacturer Fisher & Paykel yesterday sacked 740 staff across Australia and New Zealand, saying it was shutting down its Brisbane plant and relocating it to Thailand.

The company blamed the decision on exchange rates, higher interest rates, and competition from low-cost labour countries.

The news comes as figures from the Reserve Bank yesterday showed the average credit card balance grew to $3085 in February -- at the slowest rate in more than a decade -- as consumers tightened their belts.

More than 300 Paul's Warehouse staff are at risk of losing their jobs, with the company forced into a nationwide closing-down sale to pay off its debts.

One of its 20 stores has already closed, with another two in the Sydney metropolitan area shutting the doors within a fortnight.

"Three weeks ago we thought we had lost everything that we had worked for," managing director Paul Dwyer told The Daily Telegraph, adding that he hoped at least one store would be salvaged from the fire sale.

One Paul's Warehouse store manager said his store could close within weeks.

"Everything is unsure at the moment, a lot of my staff are looking for jobs. I have not kept anything back from my staff, even if I have been asked to," he said.

Paul's Warehouse administrator, PKF corporate recovery manager John Morgan, said the combination of interest rate rises hurting consumers and the spiralling cost of its debts had hurt the company.

"The fact that interest rates have gone up and perhaps disposable income has gone down adds to the problems," Mr Morgan said.

"Paul opened a lot of stores very quickly and it proved to be unfortunate for him."

Furniture retailer Dare Gallery, which employs 60 staff, has been forced to shut down its Castle Hill store, with stores at World Square and Moore Park on notice.

Deloitte was appointed voluntary administrator of the company earlier this month, with the sale of the company and its remaining 12 stores a possibility.

"I'm continuing to trade the business, I've advertised the business for sale and I'm talking to interested parties looking to acquire the business as a going concern," Deloitte's Tim Norman said.

The NSW Business Chamber has warned there could be more pain for retailers.

"Sydney businesses are doing it tougher than in other states," the chamber's public affairs manager Paul Ritchie said.