Interest rate cuts not helping retailers

David Jones CEO says consumers keeping hands in pockets

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published November 23, 2012 2:32 pm AEDT

Rate cuts are yet to boost consumer spending, according to our two largest department store retailers. Recently released sales figures suggest David Jones Limited (ASX: DJS) and Myer Holdings Limited (ASX: MYR) have yet to seen any upturn in activity despite 1.5% being lopped off official cash rates this year.

Speaking at the company's AGM today, David Jones' outgoing chairman, Bob Savage said, "The past year has been a difficult environment for retailers. Consumer sentiment remains subdued despite interest rate cuts by the Reserve Bank of Australia".

The company was lambasted at the meeting by several shareholders for its poor customer service in its department stores. That may be due to the extreme cost cutting measures adopted by previous management, with hundreds of customer service staff cut across the company. David Jones has acknowledged the issue and was increasing staff numbers, but said that numbers were based on customer traffic volumes.

Just two days ago, David Jones reported its first increase in quarterly sales in two years. Sales rose 0.3% to $415.6 million, although analysts had been expecting a rise of up to 1%, in line with Myer's reported results.

Retailers are hoping that the RBA cuts rates in early December, to kick-start consumers into shopping in-store again. Both Mr Zahra and Myer's chief, Bernie Brookes, were looking forward to the Christmas shopping period, and while they were preparing for a flat Christmas, compared to last year, they were hopeful that it would be better than that.

Of course some retailers were doing better than others, with Kathmandu Holdings (ASX: KMD) reporting a 20% increase in sales last quarter, while Country Road Limited (ASX: CTY) announced a 12% jump in like-for-like sales. Specialty Fashion Group (ASX: SFH) also recently reported that it had seen low single digit sales growth.

Foolish takeaway

A further rate cut early next month would likely be a huge bonus for retailers – whether the RBA will oblige is another matter entirely.

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Motley Fool writer/analyst Mike King owns shares in BHP Billiton. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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