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Retail recession and shopper strike 'fake news', Gerry Harvey says

Madeleine Heffernan

As headlines go, it was a powerful one: Retail, one of the country's biggest sectors and biggest employers, is "verging on recession".

So said broker Citi, after official figures showed Australian retail sales fell by 0.1 per cent in March, the third negative performance out of four months and the sector's worst performance since the heart of the financial crisis.

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Harvey Norman earnings report

Retailer Harvey Norman reports a 39 per cent increase in half-year net profit.

"Retail sales number are just 2.1 per cent higher than the same level of last year," Citi said. "This is the slowest growth rate in almost four years." 

The Australian Bureau of Statistics figures showed sales declined at department stores, cafes, restaurants and takeaway joints, as well as for household goods. Pharmaceutical, cosmetic and toiletries retailing bucked the negative trend, as did other recreational goods. All listed retailers have experiencing a slowdown in sales since January, Citi said. 

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The reason, it told clients, is house prices won't continue to rise. "The positive contribution from the housing sector to the economy will begin to fade in the second half of this year, so the retail sales data cannot continue to ride on the back of the housing sector," it said.

Talk about a red flag to a bull.

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Billionaire Gerry Harvey, of electronics and furniture retailer Harvey Norman, said the comments were "fake news" and the reality was "totally the opposite".

A 0.1 per cent fall was "hardly recessionary", he said, and in any event it ignored the fact that a large chunk of businesses – such as his – were increasing sales.

"There'd be a lot of retailers out there doing extremely well; it's a good market at the moment," Mr Harvey said. "For everyone to talk about being on the verge of recession, it's such a stupid thing to say."

Mr Harvey also rejected suggestions that retailers are particularly susceptible to falls in consumer sentiment.

"I've been doing this for about 60 years, and I don't believe it is that sensitive. I've read it plenty of times, but in my experience it's just not true."

But another senior retailer disagreed, saying dire predictions dutifully reported by journalists damaged consumer sentiment, making people "feel guilty" for their purchases.

Consumer sentiment has slowed due to political uncertainty around the world, and apparel retailers have been hit by unpredictable weather and years of discounting, he said. 

"[But] the investment community always panics about things, they really do," he said. 

Dean Fergie, director and portfolio manager at Cyan Investment Management, said recession talk was a "little dire".

"We don't think we're going to go through a booming retail period, but we're not going to fall off a cliff either," he said.

"Retail is a very broad sector, and people can get emotional benefit from buying stuff without spending the money they did in the past," he said. Clothing prices, for example, are their lowest in decades.

"There are so many good value propositions out there, and food and entertainment continue to boom.

​"Are people going to continue to buy $10,000 sofas? Maybe not. But they will be buying small."

Glenn Carmody, Oceania market segment leader - consumer & industrial products at professional services firm EY, said, "My personal view is revenue will grow (albeit slowly) but margins will continue to be under real pressure.

"This is what is causing the failures and closures. Amazon will only make it harder to make a return."

And ​ANZ senior economist Jo Masters said retail was facing a "very tough environment, both because of competition from foreign retailers and also because of demand."

She said many things were going on with households: a preference for services instead of products, elevated job insecurity and weak wage growth.

"Consumer confidence around personal finances has trended lower this year and I think consumers are starting to see low wage growth as entrenched," she said. "Strong house price growth has buffered weak income growth but we are expecting house price growth to moderate."

ANZ expects household savings rates to increase in quarterly figures to be released next month, from 5.2 per cent. "It would be very worrying for the outlook for retail if the savings rate starts to trend higher," she said.

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