The Reserve Bank of Australia’s decision to raise the interest rate to 4.75 per cent in November has caused concern among retailers who anticipate a backlash in consumer spending.Australian Retailers Association (ARA) executive director Russell Zimmerman said the interest rate increase would be “an absolute killer” to Christmas trade.
“I am hoping the Reserve Bank does not increase its interest rate in December,” he said. “However, I note with interest that in a recent news journal, it is stated that Westpac may increase the interest rate above the Reserve Bank’s official 25 basis point.”
Zimmerman pointed out that Commonwealth Bank customers paying up to $300,000 in mortgage could be affected by as much as approximately 15 dollars extra a week. Over a Christmas selling period between six to eight weeks, that spelt a loss in spending power of around $250 per consumer. More importantly, most mortgages were over $300,000.
He said the interest rate increase would adversely affect not only mortgage payers but also renters, many of whose leases are due for renewal around Christmas and could face a hike in rental costs because of increases to the cost of their landlord’s mortgage.
After the Reserve Bank's decision last week to keep interest rates at 4.75 per cent, the outlook looks to be more positive.
Vanessa Cunliffe, who owns Perfect Pieces Jewellery in New South Wales, is apprehensive about the interest rate increase. “People will be very wary. It’ll be interesting to see if everyone has been saving up all year and will spend or if they’ll continue with the wariness,” she said.
Nick Pepe of Casa Gold Jewellers in Western Australia does not foresee a good Christmas either – albeit for different reasons.
“The escalating gold prices, more so than the interest rates, are affecting my business. It has been very hard to sell my 18-carat selection,” he complained.
Dennis Coleman of Balwyn Jewellers in Victoria agreed. “I don’t believe the interest rate increase will affect jewellery sales. It’s only by a quarter of a percent.”
Coleman said his big concern was the gold prices as well. He used to stock large gold pieces but has shifted the focus of his store to silver jewellery owing to recent market forces.
He also complained that the electronics industry has been taking discretionary spend away from the jewellery sector; a consumer with $1,000 to spend can barely afford high-quality gold jewellery any more, he says – whereas with the same amount of money, a plasma screen television is easily attainable.
Aside from interest rates, Zimmerman predicts that the strengthening value of the Australian dollar will both hinder and benefit retailers in the lead-up to Christmas. “The increasing dollar is a double-edged sword. The situation is good for jewellers because their importation costs are down, but it’s bad for retailers because people will buy overseas products directly online,” he said.
Cunliffe added, “The parity of the dollar is hindering people because it is causing a lot of people to buy jewellery from overseas for half the price.”
However, the strong dollar could be advantageous for some. Peter Gordon of Peter Gordon Jewellers in Brisbane said, “The parity of the dollar is better for me because diamonds are cheaper and that’s what I’ve been promoting in the lead-up to Christmas.”
High-end jeweller Victoria Buckley in Sydney is optimistic for the same reason, although she planned her Christmas range of diamond jewellery a year in advance without foreseeing the low diamond prices.
Buckley added that because of her target market, recent economic concerns were unlikely to have an effect on customer spend in her store. “Despite the interest rate increase, our demographic of customers will still spend significant amounts of money on specific occasions such as Christmas and anniversaries,” she explained.
She was also unperturbed by the parity of the dollar and the increase in overseas products. “My pieces are custom made, exclusive and unmatchable. You can’t get the same thing elsewhere.”
Zimmerman also highlighted the weather as a potential deterrent for shoppers this Christmas. “Retail, especially the clothing and jewellery sector, are weather dependent. There has been a lot of talk about the El Niño phenomenon, which is forecasting a lot of rain until March.”
Zimmerman said a drop in sales may occur if summer ends up being cool and wet.
However, he said retailers have been and always will be competitive – what will ultimately boost stores’ sales are store displays, visual merchandising and customer service.
Yet product and business development manager at visual merchandising firm Chas Clarkson, Lisa Lubar told Jeweller that retailers have been spending less in this area. “Over the past two to three years, retailers have been putting less in their window displays and relying more on printed material such as posters and banners.”
Lubar said retailers need to revert back to traditional notions of creative visual merchandising in order to stand out in an increasingly crowded market. “There is such little time to attract passing traffic and we’re already bombarded by messages everywhere. I think bringing theatre back to stores differentiates them more and adds a lot more excitement,” she said.
She said jewellers should emphasise beautiful, statement pieces in their store displays that draw people’s attention to their product without overshadowing it.
The festive trends she has picked up on in jewellery stores for this Christmas are the use of sequinned and feathered tail birds, red and silver and eco-natural materials like paper.
Lubar said she had not heard any negativity from retailers as this year’s festive season gets underway.
Despite conflicting outlooks for Christmas 2010, the majority of retailers are hoping for the best.
Cunliffe conceded that despite concerns over interest rates and currency fluctuations, “Christmas is still Christmas and it is big in Australia so it may well be good.”
James Temelli, marketing manager of Temelli Jewellery in Melbourne, said, “People always celebrate Christmas so we are optimistic for similar sales results to previous years, although it is not likely retail sales will increase as significantly as they have in previous years.”
New South Wales opal retailer Ian McArthur was perhaps the most upbeat. “I expect a very good trading season and I expect to clean up.”
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