Tough times ahead for retailers

Posted by Josette Dunn on 15th February 2010

Retailers will continue to face challenges over the next year as consumers return to saving their money, a franchising expert says.

Stan Gordon, managing director of Franchised Food Company (FFCo) which owns Cold Rock Ice Creamery, Mr Whippy and Pretzel World, said shoppers had become frugal as a result of the global financial crisis.

His comments came as the Cold Rock franchise network reported flat sales for January.

“Consumers are being more mindful of the products they buy, even using the term ‘saving’ when questioned in research and retailers must take notice,” Mr Gordon said.

“The retail sector experienced a bounce from the Rudd government’s $900 handout but the benefits of that stimulus package have since passed.

“The economy is settling into a slower grind as consumers return to saving their money. I think retailers can expect only modest sales growth throughout 2010, particularly as more rate rises loom.”

Mr Gordon said Cold Rock sales had been impacted by several rate rises, recent wet weather across much of the country, unemployment and the government’s 50 per cent tax incentive on capital goods purchased before 31 December 2009.

“While the Australian Bureau of Statistics found the jobless rate fell to 5.5 per cent in December, a much better result than predicted, that was thanks to a rise in part-time jobs,” he said.

“Many full time workers have gone part time and their hours have been cut. People have debts to pay off and jobs to find and that will come at the expense of the retail sector.

“The full recovery of the sector requires a better job market and many of the spending trends of 2009 will continue.”

Retailers in Australia last year were faced with weak demand from consumers in the wake of the Global Financial Crisis, with bad news from around the globe making people nervous about the future.  The situation in Australia was not as dire as in other countries such as the US; unemployment did not rise as steeply here, and fewer businesses went under.  However this did not stop consumers from reigning in their spending, and choosing to save their money instead.

Mr Gordon said “As the year progresses, we’ll see consumers stepping up their spending but retailers should look to 2011 as the time for a return to decent growth in retail sales.”