Australia is facing a ‘luxury’ recession

All the commentary and retail sales data coming through for the post-Christmas and New Year sales in Europe, the US, Australia and New Zealand tells us this financial crisis is very different to previous recessions.

Low interest rates and low petrol prices. No raging inflation. Core retail spending is stable or showing marginal growth. People are spending on day-to day-items, the necessities like food, clothes, alcohol and home entertainment. This is happening all over the western world.

Not convinced?

For the 33 retailers in the US tracked by Thomson Reuters, we saw only a 0.9 per cent drop in December same-store sales. More than half beat analysts’ expectations. Sales at US Wal-Mart stores open for more than a year rose 1.7%.

In the UK, department store chain Debenhams showed better than expected trade over the crucial Christmas period and fashion retailer NEXT said trade was within expectations and reaffirmed profit forecasts for the financial year. Sainsburys supermarkets performed well with 4.5% rise in like-for-like sales and Morrisons reported 8.1% increase in stores open for over a year.

Europe’s largest mobile phone retailer, Carphone Warehouse Group PLC also managed a 13% rise in retail revenues. Again, well-run retailers did well at Christmas despite the economic climate.

In Australia, strong retailers like Wesfarmers, Woolworths Group, Harvey Norman and JB HiFi are all reporting – or believed soon to report – stable results.

Overall, consumers are still spending their pay packets on things they “need”. And we’re doing it with more money in our pockets than we did 12 months ago, thanks to low petrol prices and mortgage repayments.

The luxury market tells a different story. People have halted spend on perceived discretionary items and the loss experienced with the significant drop in sales is impossible to absorb for any length of time.

The US jewellery chain Zales posted a 35% sales drop over December and January. Louis Vuitton shelved its plans for a new mega store in Tokyo. Many of Auckland’s luxury Chancery shopping precinct retailers have closed.

Closer to home, some retailers in Sydney’s luxury strip, Castlereagh Street, have not served a local customer in six months.

Then there is David Jones, which last week reported a 9.5% fall in sales and the prudent decision to cut 150 management jobs as a result. But you’ll also note, not a single job loss in its retail outlets. They are deliberately not impacting their customer service.

Signs clearly point to a luxury recession, as consumers tighten their belts and weed out the “wants” from the “needs”.

But even facing this “luxury recession” smart thinking and experience is allowing some retailers and brand owners to weather the storm.

Back on Castlereagh Street, one of the oldest and wisest privately-held jewellers, remembering previous downturns, has switched his stock profiles and advertising to target inbound travellers who benefit from the low Aussie dollar and can claim back the GST. It’s working too.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.