It might be the summer season Down Under, but storm clouds are gathering for Australia’s retail sector, as the cost of living squeeze takes hold.

An industry already rocked by the bargain basement price that department store chain David Jones went for as South Africa’s Woolworths Holdings Limited (WHL) cut its losses, has now seen sales record their biggest drop in more than two years.

And with Black Friday and Christmas no longer propping up spending, interest rate hikes, inflation and job worries are shaking consumer confidence, with the industry growing increasingly worried just how much worse the picture might get.

For WHL, eight years of owning David Jones — which it purchased as a listed company in 2014 for $1.5 billion — has ended with a cut price sale of the 43-store group to Sydney-based Anchorage Capital Partners.

Anchorage has previously achieved turnarounds with brands such as Burger King NZ and Golden Circle and its deal with WHL is thought to be worth around $177 million including an upfront cash consideration of $71 million and $106 million in dividends for WHL.

The South African company also reported that the deal meant it would remove around AUD$1.4 billion in liabilities relating to the David Jones store portfolio and will retain ownership of the flagship property asset in Bourke Street, Melbourne, which will be leased to David Jones on a long-term basis on market-related terms.

WHL is expecting at least $250 million from the sale of that property but there is no getting away from the fact that its ownership has ended in a huge loss.

Australian Retail Sales Plunge

Meanwhile, Australian retail sales fell 3.9% in December from November, after 11 months of consecutive gains, according to Jan. 31 figures from the Australian Bureau of Statistics (ABS).

That also marked the biggest drop since August 2020, at which point parts of the country were under a lockdown because of the pandemic.

The news surprised analysts and missed their median forecast for a slight drop of 0.3% by a country mile. November’s results, driven by Black Friday sales, were revised upward to 1.7% from an originally reported gain of 1.4%.

“The large fall in December suggests that retail spending is slowing due to high cost-of-living pressures. Retail businesses reported that many consumers had responded to these pressures by doing more Christmas shopping in November to take advantage of heavy promotional activity and discounting as part of the Black Friday sales event,” said Ben Dorber, ABS head of retail statistics, announcing the figures.

Sales declined the most across discretionary goods including department stores, household goods retailing and fashion retailers. In fact, sales at department stores plunged 14.3% from the previous month.

Inflation is already running at a 32-year high of 7.8%, with the closely watched measure of core inflation accelerating to 6.9%, well above forecasts of 6.5%.

More Retailers Could Fail

The cut price sale of David Jones could be just the opener in a year that threatens to see household retail names hit hard by the downturn. Last year fast delivery specialist Deliveroo pulled out of the Australian market and as recently as mid-December luxury furniture retailer Brosa went into voluntary receivership.

It joined a raft of failed and struggling businesses, including plus-sized apparel retailer City Chic, which issued a December profit warning, lifestyle group Luxury Retail No.1, which went into receivership early August, footwear retailer Sneakerboy, which entered voluntary administration in July, and Premier Retail, which shuttered Sydney Peter Alexander, Smiggle and Portmans stores in March and a Just Jeans store in July.

Amid the gloom there is one stand-out — Kmart Australia.

Yes, you read that right. Despite Kmart’s near disappearance in the U.S., the retailer has been successful at reinventing itself in Australia, particularly with younger shoppers who would previously have avoided its old-fashioned stores.

Kmart has been particularly strong in selling home decor at good value and an influencer marketing survey last year by Hype Auditor found the retailer had garnered a cult youth following.

Most recently Kmart has attracted widespread notoriety for refusing to stock any merchandise related to the just passed Jan. 26 Australia Day, which many younger Australians are snubbing out of respect for First Nation citizens.

But right now many of Kmart’s retail peers will be looking worriedly at the economic headwinds and wondering whether they will be around come next year’s Australia Day.

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