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Walt Disney boss Bob Iger announced plans for a dramatic restructuring of the world’s largest entertainment company that includes cutting 7000 jobs and $US5.5 billion ($7.9 billion) in cost savings.

The reductions include lower spending on programming and $US2.5 billion in non-content related cuts. About $US1 billion of the savings are already underway, Iger said on a conference call with investors on Wednesday. The job cuts amount to about 3 per cent of Disney’s global workforce.

As part of the change, Disney’s CEO also announced that the company will be reorganised into three divisions: an entertainment unit that includes its main TV and film businesses, the ESPN sports networks, and the theme-park unit, which includes cruise ships and consumer products.

The reorganisation is intended to improve profit margins, Iger said, and represents his third major transformation of the business following efforts to beef up its film franchises through acquisitions and the development of its online business.

Iger, who returned to the lead the company in November after his successor Bob Chapek was fired, has been under pressure to improve results. Activist investor Nelson Peltz is seeking a board seat at the April 3 annual meeting, arguing in part that Disney shares have underperformed and the company needs better cost controls.

Earlier on Wednesday, Disney announced upbeat financial results, led by big gains at its theme parks.

Profit came to 99 US cents a share in the period ended December. 31, Disney said, above the 74-US-cent average of analysts’ estimates. Revenue grew 7.8 per cent to $US23.5 billion, slightly above projections.

Subscribers to the Disney+ streaming business declined 1 per cent in the quarter to 161.8 million, the first such decline, amid cancellations of the Hotstar service in India after Disney lost streaming rights to cricket there.

Losses in the streaming business more than doubled to $US1.05 billion from a year earlier, but that was better than management had forecast three months ago.

“The work we are doing to reshape our company around creativity, while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders,” Iger said in a statement.

Outsized losses in streaming contributed to the ouster of Chief Executive Officer Bob Chapek late last year and the return of Iger, who led the company from 2005 to 2020. The Burbank, California-based entertainment giant is seeking to achieve profitability in its streaming division next year and fend off Peltz, who holds a stake worth about $US1 billion.

After years of focusing on subscriber growth in streaming, Wall Street’s attention in recent months has turned to when the media industry’s staggering investments in online film and TV shows will begin earning a return.

To help counter the losses in streaming, Iger is considering licensing more of Disney’s films and TV series to rivals after years of keeping the vast majority of the titles exclusive to its own platforms.

Disney’s parks continued to shine, with revenue in that division increasing 21 per cent to $US8.74 billion and earnings climbing 25 per cent to $US3.05 billion. The results included sales and earnings from consumer products that were little changed.

Revenue from Disney’s traditional broadcast and cable TV business, such as ESPN, fell 5 per cent to $US7.29 billion, while operating income slumped 16 per cent to $US1.26 billion, hurt by weakness outside the US.

Michael Hill International Limited has reported double-digit sales growth for the first half of FY23 across its international portfolio.

Group sales were up 11.7% on last year to $363.3 million, and 14.5% on FY21 - with seven fewer stores.

Its Australian segment revenue grew by 18% on last year and 8.8% on FY21, with its New Zealand segment growing by 13.8% on last year and by 10% on FY21.

Michael Hill’s Canada portfolio grew revenue by 0.5% on last year, and by 25% on FY21.

Michael Hill CEO and MD Daniel Bracken welcomed the result, saying the company was comping a record second quarter last year.

“This year, while the first quarter results were cycling store closures, the delivery of 4% growth in Q2 was outstanding, underpinned by yet another strong Christmas execution,” Bracken said.

“The first half sales of $363m represent a new record, up $30m on the previous best half in FY20, even with 22 fewer stores.

“While record sales were a highlight, equally pleasing was our ability to maintain elevated margins despite significant input cost pressures and increased promotional activity in the market.

“Considering Canada had a record first half last year, this year’s result still delivered growth, and represents 26% growth on two years ago.”

Meanwhile, the company reported a decline in digital sales of 9% on last year, however they were still up 30% on H1 FY21.

It also announced a successful transition to its new state-of-the-art global headquarters in Brisbane, which houses the global leadership team and functions, a high-tech distribution centre and a reimagined artisanal jewellery workshop.

Australian families are feeling financial stress as they work their way through back-to-school shopping lists, but Officeworks boss Sarah Hunter says consumers are also joyful at the thought of a year of learning without COVID-19 interruptions.

“This is the first year we are all so hopeful our children will have a completely ‘as normal as it can be’ full year of school,” the chief executive of the Wesfarmers-owned office supplies store said.

The prospect of a school year sans-COVID disruptions is driving families into stores to choose all-important items like pencil cases, lunchboxes and drink bottles together.

“We are seeing a lot of parents come into store and want to have that experience with their children,” Hunter said.

This week is one of the most important trading opportunities of the year for retailers focused on education essentials, and there is significant spending to be captured. Finder figures for 2023 put the price of a full set of school supplies, including stationery, textbooks and uniforms, at $571 for primary school students and $771 for secondary students annually.

Despite the excitement about a new year of in-classroom learning, merchants must strike a difficult balance this year on the price of materials, given households are absorbing several months of rising interest rates and soaring inflation, which hit 7.3 per cent for the 12 months to November.

The cost of education increased by 4.6 per cent compared with the 12 months to November 2021, according to Australian Bureau of Statistics figures. Meanwhile, this masthead reported last week that Victorian families are facing debt collection services for unpaid private school fees as even wealthier households start to feel the pinch. 

A UBS consumer survey for the last month of 2022 shows inflation is most affecting income earners on less than $48,000 a year, with this cohort expecting their income to contract further over the next year.

At the same time, book lists are featuring more technology requirements than ever. Beyond standard exercise books, glue sticks and highlighters, students need increasingly sophisticated headphones, laptops and tablets.

Then there are bento boxes for lunchtime and art supplies. Even the staple musical instrument of primary school, the recorder, is still a part of the return to school – Officeworks has sold close to 10,000 recorders during this financial year.

That’s making price guarantees more important, with Hunter saying Officeworks’ promise to beat the price of school goods at other retailers by 20 per cent is drawing in shoppers.

“There is certainly financial pressure, absolutely – which is why they come somewhere where they trust,” she said.

That includes a focus on low-cost basics, with many of its most popular home brand products including glue sticks, exercise books, drink bottles and pencil cases coming it at less than a dollar.

Competition for household back-to-school spend is growing, however, with players like Amazon expanding its range over the past two years. This is also a major trading period for kids stationery brand Smiggle, which reported $261.2 million in sales last year.

After a few years of remote learning, the importance of adding individualised touches to school gear is growing, Hunter said.

“One of the interesting trends we’ve started to see more of is personalisation.”

That’s one area where Officeworks is hoping to capitalise with budget-friendly options for kids to order monogrammed pencil cases, drink bottles and bag tags through the group’s printing business.

“What Smiggle and Amazon don’t do is ‘personalised by you’. That’s where we see a really big opportunity,” Hunter said.

The Fair Work Ombudsman (FWO) has commenced legal proceedings in the Federal Court against Super Retail Group (SUL) and four subsidiary companies, alleging underpayments.

Super Retail Group’s subsidiaries include Rebel Sports, Super Cheap Auto, SRG Leisure Retail trading as BCF and Ray’s Outdoors and Macpac Retail.

Between January 2017 and March 2019, it is alleged that employees were underpaid a total of approximately $1.14 million for their work.

Underpayments of individual sample employees ranged from small amounts to about $34,500 during this timeframe. The workers were responsible for store management, setting up stores, retail and administration.

The case came to light after the company self-reported “widespread” underpayments to the FWO and the Australian Securities Exchange in 2018.

The regulator has alleged that most of the underpayments were a result of subsidiary companies paying salaried employees annual salaries that “failed” to cover their minimum lawful entitlements.

Fair Work Ombudsman, Sandra Parker, said keeping large corporate sector employers “accountable” for any underpayments remained a “priority”.

“The breaches alleged in this case – inadequate annual salaries for employees stretching across multiple years – have become a persistent issue for businesses across many industries,

“Every employer should be clear that if annual salaries do not cover all minimum lawful entitlements for all hours actually worked, the results can be substantial back-payment bills, plus the risk of significant court-ordered penalties. Penalties can also be higher for serious contraventions.”

The company has also “failed to pay all entitlements” owed for hours worked while overtime entitlements, weekend and public holiday penalty rates were underpaid.

FWO is seeking penalties against Super Retail Group and its four subsidiaries — about $63,000 per breach while the holding company will be fined $63,000 for liability-related penalties.

In an ASX statement, Super Retail Group MD and CEO, Anthony Heraghty, said: “We note the allegations in the proceedings and reiterate our view that this matter represents a regrettable chapter in our company’s history.

“It is unacceptable and contrary to the company’s values for any team member not to be paid correctly. We are sorry for the impact on our team members and today we restate our unreserved apology to each person affected.”

The company said a comprehensive back payment program for affected team members has been undertaken with the assistance of external advisers.

A “growing appetite” for luxury brands is driving demand for space in prime Sydney CBD retail locations, according to research from Ray White.

Sydney CBD’s prime retail real estate comprises Martin Place, Castlereagh Street, Park Street and George Street, along with Pitt Street Mall.

According to Vanessa Rader, head of research at Ray White Commercial, an increase in the personal and household goods retailing segment due to an influx of jewellery retailers, which now account for 21.5 per cent of stores, not far behind clothing and soft goods, which account for 31.2 per cent. Services such as banks, communications, beauty and medical contribute 16.1 per cent.

Rader said an increasing number of international luxury brands have converged on the Sydney CBD retail areas during the past two years.

“The growing emphasis on these establishments within our CBD brings a new level of quality and activity back to the city after a difficult few years and now represents 23.4 per cent of our street-fronted shops within our prime retail core.”

Despite rising interest rates, Rader says there is strong demand for luxury brands by consumers, both domestically and from overseas visitors.

The redevelopment of MLC has added brands like Valentino and Messini to Castlereagh Street which has been home to Chanel, Bvlgari, Hermes, Gucci and Prada. Dior has relocated to this precinct area while Cartier secured a new flagship location on George Street.

King Street now features Hublot, Panerai, Tiffany & Co and Chaumet.

The results from Myer and a week ago JB Hi-Fi tell us a lot about the two individual companies themselves, the broader retail dynamics, and the post-Covid post-rate hikes economy.

The core point to bear in mind is that JB and Myer sit at opposite ends of the 21st century retail reality.

JB has been one of the outstanding successes, very effectively riding and indeed exploiting and conquering the wired - and indeed, unwired: read Wi-Fi - world of today.

Myer in contrast looked like being confined to the dustbin of sprawling 20th century bricks and mortar department store history. What worked, so brilliantly, for Harry Selfridge and Sydney Myer, worked no more a century later.

Well, no surprise, JB keeps ‘hitting it out of the park’. Sales up 8.6 per cent, profit up 14 per cent. Whatever CEO Terry Smart is putting in the morning coffee, it’s kicking butt.

With apologies to Terry, even more impressive though were the numbers unveiled by Myer CEO John King.

I might add that King is the very model of my perfect CEO: just getting on with delivering results. No bombast, no pontificating. So, please Sol, even if grudgingly, give him a tick.

Myer reported sales up a stunning 25 per cent in the five months to December 31; including an even more mind-boggling 38 per cent actually in its stores. As a consequence online sales actually dropped 9 per cent.

The explanation of both, up to a point, was a certain premier named Dan Andrews, and to a lesser extent one named Dominic Perrottet. That’s to say, those lockdowns in the 2021 base comparative period.

But it wasn’t just about springing back from closed stores. Myer sales were actually up 19 per cent on the last, December half 2019, pre-Covid period.

That’s to say, there is – seemingly rather vibrant – life in the old blended bricks and mortar and online girl after all.

That’s the key point about Myer and King. He’s succeeded in keeping the stores vibrant – albeit, where necessary, closing them – while developing an online business which is now of serious and more critically sufficient scale.

Yes, online sales dropped from the 2021 lockdown comparative period. But they were still way up on the pre-Covid period and now comprise one in every five dollars spent at Myer.

In short, the Myer growth future is online, and it’s got the business to go there, while rebalancing the bricks and mortar to a sustainable, profitable future.

In short, Myer and JB combine to tell us there is a retail future both in stores and online.

The key to success is balancing the two, while precisely locating the physical locations and making the online offer seductive and seamless and indeed connected to the core stores’ physical reality.

Now, there is good and bad news in the broader message delivered by both Myer and JB.

That message is, simply, that despite rate rises, the consumer has disposable money and the consumer is prepared to spend.

The good news should be obvious: the economy ain’t going over any sort of cliff anytime soon.

Further, again both good and bad news, the consumer is spending that money locally.

The ‘bad news’ part is of course what it says about inflation and interest rates.

Simply, that inflation ain’t going to miraculously and conveniently, disappear; and rates aren’t going to go back to the fabulous ‘free money’ levels of 2020 and 2021.

That said, as 2023 unfolds, I suggest that China is going to throw a – positive, broadly unexpected – curve ball into everything.

We are going to see China ‘get back to work’ – simply, delivering cheap product to the world.

I can see a very, very positive global dynamics – if politicians and activists don’t cruel it.

Tattarang has announced a significant investment in Camilla Australia Pty Ltd (CAMILLA), the Australian fashion brand owned and creatively directed by Camilla Franks.

The brand has now grown into a global group since its launch in 2004, sold across 65 countries.

Tattarang Director Nicola Forrest AO confirmed the investment makes Tattarang a minority shareholder. 

“We are delighted to back Camilla Franks, an extraordinary entrepreneur leading a cutting-edge fashion brand doing amazing things in the creative space,” Forrest said.

Forrest said Tattarang would also focus on female founders at an earlier stage in their entrepreneurship journey and she aimed to assist more businesswomen to develop successful enterprises at the scale of CAMILLA.

“Camilla is a brilliant example of a passionate and committed entrepreneur who truly cares about her brand and her customers and has put Australian fashion on the global stage, as well as being a role model to other female founders,” she said.

Franks said that she was delighted to welcome Tattarang as an investor and partner in CAMILLA, marking the first investment partnership the business has made since it was founded 18 years ago.

“I’ve finally found the perfect partner to help us colour the world. Partnering with Nicola and the Tattarang family is the perfect brand fit for our future vision.

“Through purposeful storytelling, creative and conscious empowerment and shared values and dreams we can take the business to a wider world stage.

“Together, we can elevate women on a global scale, harnessing the amazing artistic talent Australia has to offer, and lead with passion. It brings me great joy and pride to announce I will be joining forces with Tattarang to grow and share this beautiful brand,” Franks said.

Forrest said she is actively working to level the playing field for female entrepreneurs and woman-led or founded businesses, with Tattarang allocating capital both directly and via early-stage female-focused funds.

“It’s time for change: I believe that equal is greater and that having gender as a focus will deliver results for both women and men,” Forrest said.

“This is good for business because there is a strong correlation between gender equality and organisational success across profitability, attraction and retention of best talent and business reputation.

“We will support the next generation of women entrepreneurs who are willing to take a risk and back their dreams — Australia needs more entrepreneurs like Camilla Franks,” she said.

The investment priorities for CAMILLA include additional stand-alone boutiques – particularly in the United States.

International sales now represent ~40% of business sales, with the United States representing the most successful international market overall.

CAMILLA has also transitioned into a global omnichannel brand – more than doubling its digital mix over the last three years, growing from 18% in 2018 to 47% online sales today.

The growth in online sales is complementary to an experiential bricks-and-mortar presence which consists of 25 retail boutiques across Australia and the United States, and 264 wholesale stockists across the globe spanning 65 countries.

Australians sharply reined in Christmas shopping in December, in the first sign that runaway inflation and surging interest rates are weighing on household budgets.

Retail sales dropped by 3.9 per cent to record the first monthly fall for 2022, according to seasonally adjusted figures from the Australian Bureau of Statistics.

ABS head of retail statistics Ben Dorber said “the large fall in ­December suggests that retail spending is slowing due to high cost-of-living pressures”.

“Retail businesses reported that many consumers had ­responded to these pressures by doing more Christmas shopping in November to take advantage of heavy promotional activity and discounting as part of the Black Friday sales event,” he added.

Inflation reached 7.8 per cent in December and economists predict a collapse in consumption through 2023 as high prices and higher mortgage repayments bite.

Analysts, however, said they still expected the Reserve Bank board would deliver its ninth straight rate hike next Tuesday, taking the key cash rate from 3.1 per cent to 3.35 per cent.

Citi chief economist Josh Williamson calculated that spending on discretionary items fell by 5.4 per cent in December – the biggest drop since lockdowns in April 2020.

“The fall in nominal retail trade at the end of 2022 may be a signal that monetary policy is starting to work via the channel of discretionary spending. But the RBA can’t take this as a signal to stop tightening next week,” he said.

Mr Williamson said he ­expected a further cash rate increase next week, following by two more to a peak of 3.85 per cent.

The retail sales figures exclude spending on services such as travel and accommodation and which economists believe boomed over summer as Australians enjoyed the first Christmas holidays free of Covid restrictions.

Taking this into account, Capital Economics senior economist Marcel Theriault said “a solid ­increase in services spending means overall consumption should still have risen at a decent clip”. “But the engine of Australia’s reopening rebound has shifted down a gear,” Mr Theriault said.

Despite the surprisingly large fall in spending in December – ­analysts had forecast only a 0.2 per cent decline – retail sales remained elevated following a booming 2022 in which Australians continued to spend freely despite steadily higher interest rates, soaring inflation and plunging real wages.

Retail spending was up 7.5 per cent over the year to December, the ABS data showed.

Economists also noted the difficulty in accounting for seasonal factors thanks to the ever-growing popularity of the Black Friday and Cyber Monday sales, which are timed around the American Thanksgiving holiday.

The retail industries that suffered the largest falls in sales in ­December were those which ­experienced the biggest boosts during the November sales events, the ABS said. Department store sales collapsed 14 per cent, followed by a 13 per cent drop in spending on clothing and footwear, and an 8 per cent decline in household goods, according to the seasonally adjusted figures.

“Seasonal spending patterns continue to change and evolve around Black Friday and the holiday period,” Mr Dorber said.

“While there was a strong rise in original terms for December, as is expected in the lead up to Christmas, this year’s rise in original terms was smaller than those typically seen in past December months. This has led to the large seasonally adjusted fall.”

Food retailing was the only ­segment to record an increase in December – up a slight 0.3 per cent, while cafes and restaurants spending was flat. Shoppers spent less than usual across the states and territories, with 4.7 per cent declines in Victoria and Western Australia leading the falls. Retail sales in NSW fell by 3.4 per cent.

Asia-based omnichannel brand operator Bluebell Group has expanded its reach into Australia, initially with brand partners Gentle Monster and Pinko.

The retail group marked its market debut with the opening of Italian fashion label Pinko in Sydney’s Westfield mall in November, followed by the launch of South Korean luxury eyewear brand Gentle Monster’s first store in Australia at Sydney Airport before Christmas. 

Bluebell Group said it has a larger plan for Australia this year, aiming to expand the current in-market brand partners’ presence in the country and introduce other brands as well. 

Australia marks Bluebell Group’s first market outside Asia and its 10th market after Japan, South Korea, Mainland China, Hong Kong, Taiwan, Macau, Singapore, Malaysia and Cambodia. 

Brands the company partners with around the region include AllSaints, Anya Hindmarch, Bally, Celine, Christian Dior, Davidoff, Fendi, Furla, Givenchy, Jimmy Choo, Kenzo, Loewe, Louis Vuitton, Love Moschino, Marc Jacobs, Moschino, MSGM, Owndays, Paul Smith, Rimowa, Sergio Rossi, Tod’s and Ugg.

“Opening the Australian market is a milestone for us, completing our Asia Pacific footprint from Japan all the way down to the Southern hemisphere,” said Nelly Ngadiman, MD of Bluebell Southeast Asia & Australia. 

Gentle Monster joined Sydney Airport’s new luxury retail tenant lineup in the T1 International terminal disclosed last August, which also includes Balenciaga, Prada, Bottega Veneta, Burberry, Bulgari, Moncler, Hermes, Loewe, Rolex and Saint Laurent.

The Australia launch follows Bluebell Group’s recent full acquisition of China’s Hainan-based travel retail operator Star Brands Travel Retail. 

Founded in 1954, the family-owned group has more than 3800 employees, 600 points of sale and US$2 billion in turnover. 

The Australian shopping spree has continued with retail spending surging in November, a sign the Reserve Bank is likely to continue raising interest rates in coming months in a bid to rein in inflation as the global economic outlook deteriorates.

The spending was despite high costs for building supplies and labour and larger bills for dining out lifting inflation back up to a 32-year high in the lead-up to Christmas, and as forecasts show the global economy is on the brink of recession.

Monthly data from the Australian Bureau of Statistics showed inflation rose to 7.3 per cent in the year to November, back to September’s level after dipping to 6.9 per cent in October.

Treasurer Jim Chalmers said November’s inflation data highlighted the economic pressure being felt by all Australians.

“Even after inflation peaks in our economy, we need to remain vigilant to the global economic pressures that will continue to impact us for some time,” he said.

New forecasts from the World Bank paint a gloomy picture for the global economy, with growth around the world for 2023 now expected to be just 1.7 per cent, down from the 3 per cent predicted six months ago.

The bank warned the global economy was so fragile, events including a COVID resurgence or increased geopolitical tensions could push it into recession.

Chalmers said Australia’s economy was also facing threats from ongoing natural disasters, as well as shocks including the war in Ukraine.

“We should be optimistic about the future of our economy and our country but realistic about what the deteriorating international outlook means for us in Australia,” he said.

Opposition finance spokeswoman Jane Hume said households were paying the price for the government’s inaction on tackling cost of living pressures.

“This government was elected on a promise to lower the cost of living, and they assured Australians, time and time again, that they had a plan. Instead, we’ve seen inflation continue to rise and no plan from the government to tackle it,” she said.

ABS head of price statistics Michelle Marquardt said November’s increase in inflation was mainly driven by housing, food, transport and furniture. Housing inflation, at 9.6 per cent, was affected by higher labour and building material costs, while increased prices for takeaway and restaurant meals drove food inflation up by 9.4 per cent.

That high and rising inflation has not stalled retail spending. Australians eager for shopping deals in the Black Friday sales helped drive retail spending to a new high, increasing by 1.4 per cent over November, separate ABS data showed. It’s the 11th consecutive monthly rise in retail spending, taking the annual growth to 7.7 per cent.

But spending on categories not included in the sales slumped. Turnover in food retail, cafes, restaurants and takeaway food recorded just a 0.1 per cent rise over November, the weakest increase for those categories for 2022.

Indeed’s Asia-Pacific economist Callam Pickering said while November may prove to be the last hurrah for shopping, household spending has proven more resilient than the Reserve Bank had anticipated.

“In response, the RBA will have little choice but to hike rates, with a further 50 basis points likely in the first half of the year,” he said.

The bank lifted rates from a record low of 0.1 per cent to 3.1 per cent last year, and the board has been considering a pause in rate hikes in coming months as previous increases take effect.

EY chief economist Cherelle Murphy said there were factors affecting the inflation data including the return of the full fuel excise, and the figure was still below the Reserve Bank’s expectation of 8 per cent by the end of 2022. But a tight labour market could put more pressure on wage growth, and China’s reopening could stoke global inflation.

“The RBA’s 2022 rate hikes were designed to tame inflationary pressure, but there are too many upside risks that will force the RBA’s hand further. It will continue to raise interest rates to cool the economy in the first months of 2023,” she said.

Early data on retail spending over Christmas indicates Australians bucked the burden of higher interest rates to spend freely, but economists are questioning how much of that increased spending is just higher prices versus a resilient consumer.

Data from Westpac shows that between November 1 and December 24, retail sales were up 8.6 per cent compared with the same period in 2021, while Boxing Day sales jumped 15.3 per cent to surpass $1.2 billion.

Rival bank NAB is yet to crunch the numbers on retail spending for the full month of December, but chief economist Alan Oster is highly sceptical of claims about a bumper Christmas season for retail, given weaker spending data in the first weeks of December after Black Friday sales.

“My suspicions are that it’s not great – not because they haven’t spent a lot of money, they have, but whether it’s more than they would normally spend,” Mr Oster said.

“There have been big increases in prices, so in real terms I think [consumer spending] has almost certainly going backwards.”

After the November Black Friday sales, NAB’s data showed that spending was soft in the second and third weeks of December.

“What we know is a lot of the money that probably got spent for Christmas was spent in Black Friday,” Mr Oster said.

Lower savings

NAB will release its retail spending figures in the middle of next week and Mr Oster expects the impact of rising interest rate rises will be “quite aggressive” this year.

His comments mirror those of economist Frank Shostak, who previously told AFR Weekend the 2023 Christmas shopper had lower savings after central banks’ money printing, and would be shopping at the expense of the future. He tipped retail sales would fail to match previous years.

The economists are joined by retail analysts, who have issued downgrades on retail stocks like JB Hi-Fi and Harvey Norman and grown wary of discretionary retail as cost-of-living pressures force shoppers to tighten their belts. Investors are also expecting retailers’ margins to be squeezed as input costs go up, especially for businesses that fail to exercise pricing power – their ability to increase prices in line with costs, to protect profits.

The Australian Retailers Association, which also uses Westpac data, has said pre-Christmas trading was $74.5 billion this year – a record, and 8.6 per cent higher than 2021. It has predicted post-Christmas retail spending to tally up to $23.5 billion, also a record and 7.9 per cent higher than the previous year.

However, its chief executive Paul Zahra acknowledged price increases were hidden in the headline numbers and that cost-of-living pressures and potentially slimmer margins for retailers could emerge in the interim reporting season.

“Some analysts have said, and I broadly agree, that up to two-thirds of increase [in Christmas retail spending] was due to increase in prices and a third was the increase in volume. The sales increase may not be what RBA would like to see, but people have continued to spend and celebrate December as a season of indulgence,” he said.

Retails report strong sales

Mr Zahra said it was too early to say if retail spending data for November, December and January put together (to eliminate skews such as Australia’s newfound love for shopping early for Christmas) would surpass previous years.

However, he expected it would come out higher. This would be followed by a slowdown in spending at some point in 2023, he said.

Anecdotally, retailers have reported strong sales.

Barbeques Galore chief executive Angus McDonald said summer was outperforming the same period 12 months ago, driven by a combination of price increases and higher volumes thanks to new product launches.

“Since Black Friday we have continued to see double-digit growth. That has continued all the way through December and into early January,” Mr McDonald told the Financial Review.

He noted that while the supply challenges of 2021 have largely eased, consumers are more discerning.

“Last year if you could get stock then you would be doing well,” he said. “This year it’s actually now back to delivering a good retail experience and delivering good value to customers.”

Mr McDonald noted that with the jobless rate steady at a 48-year low of 3.4 per cent, consumers still had money to spend.

“Even though there’s obviously uncertainty in terms of consumer sentiment, people still have jobs. “If they’re passionate about something and they’re excited about the product and excited about what that means for them and their lives, there’s still plenty of opportunity for retailers.”

‘Older demographic remains strong’

Chris Kahi, the owner of Sunshine Coast-based apparel retailer Old Man Strength, was surprised by the strength of sales during the festive season.

“We’ve seen amazing sales over the Christmas period. We had originally forecast that the period would be soft due to interest rate rises and uncertainty. This has not been the case,” Mr Kahi said.

“Customer feedback and sales analysis suggests that the older (over 40) demographic remains strong. We are expecting to see Q1 2023 maintain this growth.”

Data from payment technology business Square found that both the number of transactions and the overall spend at Australian retailers using its technology increased during the Christmas period of 2022, compared with the previous year. The number of transactions grew by 29.4 per cent, while the total dollar amount spent was up 23.6 per cent.

Square does not disclose how many retailers it has in Australia, and the data is also influenced by an increase in the number of customers the company added in 2022.

“A lot of analysts expected consumers to dampen their spending this Christmas period, but based on our data it looks as though Aussies have continued shopping during this critical time of year for retailers,” said Ara Kharazian, research and data lead at Square.

“When looking at the data across all industries during the Christmas period, we saw record-breaking sales and growth that suggests continued strong consumer spending.”

Luxury fashion conglomerate LVMH has appointed Pietro Beccari and Bernard Arnault’s daughter Delphine Arnault as new CEOs for its two flagship fashion houses, Louis Vuitton and Christian Dior Couture, respectively.

The appointments mark the luxury empire’s most significant organisational changes in its history. 

Pietro Beccari, who has led Christian Dior Couture since 2018, will succeed Michael Burke to become chairman and CEO of Louis Vuitton. Subsequently, Delphine Arnault will head Christian Dior Couture as the brand’s new chairman and CEO after having served at Louis Vuitton as executive vice president since 2013.

Beccari joined LVMH as executive vice president of marketing and communications for Louis Vuitton before being appointed as chairman and CEO of Fendi in 2012. 

“Pietro Beccari has done an exceptional job at Christian Dior over the past five years. His leadership has accelerated the appeal and success of this iconic Maison,” said Bernard Arnault, chairman and CEO of LVMH.

Meanwhile, Delphine Arnault has been executive vice president of Louis Vuitton since 2013, overseeing all of the house’s product-related activities. The French businesswoman is also a member of the LVMH Board of Directors and the Executive Committee. 

“Under her leadership, the desirability of Louis Vuitton products advanced significantly, enabling the brand to regularly set new sales records. Her keen insights and incomparable experience will be decisive assets in driving the ongoing development of Christian Dior,” Arnault added.  

Meanwhile, Michael Burke will take up new responsibilities, reporting to the LVMH’s chairman. 

“He has extended Louis Vuitton’s lead over competitors and promoted the heritage of Louis Vuitton while anchoring it in modernity,” the chairman said. “I am delighted that Michael will continue by my side to share his experience and talent for the benefit of our companies.” 

In addition to the two major executive appointments, executive VP of Christian Dior Couture Charles Delapalme will take on new role as the label’s new MD and work closely with Delphine Arnault. 

Meanwhile, Stephane Bianchi, chairman and CEO of the Watches & Jewellery Division, will now also oversee Tiffany and Repossi. 

The management reshuffle follows the latest appointment of Bernard Arnault’s eldest son Antoine Arnault as CEO of family holding company Christian Dior SE a month ago. 

Last month, Italian fashion group Prada named former Luxottica chief Andrea Guerra as its new CEO to ease a transition at the helm to the next generation of the founding family.

Specialist baby goods retailer Baby Bunting says softer than expected sales in the key December trading period led to its 59 per cent slump in half-year profits, despite core nursery categories doing well.

In a statement to the ASX on Monday, the company booked a 6.6 per cent growth in sales for the half to $254.9 million, but net profit after tax came in at $5.1 million, compared with $12.5 million last year.

Chief executive Matt Spencer had flagged in October that Baby Bunting’s gross margin had declined in the first quarter of 2023 for reasons including moving more of its products to its “every day low price” policy, as well as higher input costs like freight fees increasing.

The group’s loyalty program had also affected margins in the first quarter as customers redeemed rewards at a higher rate than the company had expected. The business has since tweaked the terms of the program.

On Monday, Spencer told investors that reductions in international shipping rates would help margins in the second half. However, he noted that the company’s overall half-year result was affected by “the combination of lower gross profit margin for the half and softer than anticipated sales in December”.

The company said in its announcement lodged with the ASX that the group’s sales growth in the second quarter was “below Baby Bunting’s expectations towards the end of the quarter”.

Spencer said must-have baby goods had continued to perform well over the half.

“Our core nursery categories, which are less discretionary such as car safety, prams and feeding, continued to perform well through the half and are an important part of Baby Bunting’s future growth,” he said.

The retailer’s profit numbers were also impacted by costs related to setting up its New Zealand business, where Baby Bunting is working towards opening 10 stores.

The company is expecting conditions to improve in the second half, and is guiding to full-year net profits of between $21.5 million and $24 million.

A UBS consumer spending survey released on Monday showed very young and older shoppers were best placed for spending in the current environment. Those in the middle with large mortgages and dependents were under the most pressure, the data suggested.

“Middle-aged consumers have the greatest spending burden and are more exposed to household debt,” analyst Shaun Cousins said in a note.

Baby Bunting declined by close to 12 per cent during Monday’s sesssion to sit at $2.67 just after 2pm.

Other retail brands fared better, with Supercheap Auto and Rebel owner Super Retail Group sales had jumping by 15 per cent across its brands for the first half.

Chief executive Anthony Heraghty said the business had delivered an outstanding first-half result, led by camping gear brand Macpac, where sales were up by 55 per cent.

Heraghty said the strong trading over the Black Friday and Christmas sales periods had driven the company to a record sales performance in the first six months of 2023.

The group will report its audited half-year numbers in February. Super Retail Group shares hit highs of $12.60 during Monday’s session, a gain of 10 per cent.

Department stores and the foodservice sector drove “unprecedented” Boxing Day sales growth across Australia according to data from the Australian Retailers Association and Westpac DataX. 

And the ARA says the data shows pre-Christmas spending hit a record $74.5 billion – 8.6 per cent ahead of last year, a figure that “defied all expectations”. 

“This is without a doubt, the biggest festive season spend on record – it is unprecedented,” said ARA chief Paul Zahra.

On Boxing Day, Australians splurged $1.23 billion – up 15.3 per cent on 2021, with department-store sales of $149 million up by 23.6 per cent and the restaurants, cafes and takeaway food sector accounting for $124 million, up by 22.8 per cent year on year. 

Spending on household goods accounted for the highest share on Boxing Day, reaching $314.76 million, up by 14.3 per cent, followed by food and grocery retailing, up by a more modest 7.6 per cent to $264.52 million. 

Spending on apparel and accessories surged 19.8 per cent to $217.59 million. 

Prior to Boxing Day, there were some concerns in the retail community that higher-than-expected pre-Christmas spending combined with the impact of inflation and interest rates onc consumers’ discretionary spending might mute the traditional Boxing Day splurge-fest. 

But Zahra said the unprecedented pre-Christmas spending did not diminish the spending appetite of Aussies leading into what he described as the year’s “marquee retail savings event”.

“It is remarkable that in this period of economic turbulence, traders have well and truly smashed it out of the ball park as consumers reveled in ‘freedom’ spending. The last three years have been incredibly challenging for everybody – and retail traders were certainly no exception. The resilience and agility of the industry has been remarkable,” he said.

“Boxing Day has once again cemented its status as the Grand Final of Australia’s favorite sport, shopping.”

He said multiple elements drove the record spend, including a sense of ‘reward’ after the challenging period brought by Covid-19 and restrictions on movement and shopping. He also believes many Australians were motivated to buy now ahead of price rises driven by inflation – “and leverage savings during the sales events”. 

Westpac DataX used de-identified card-spend data to calculate the spending figures and provide insights during the key trading time.

“The data shows that despite a year of increasing living costs, Australian retail sales have remained strong over the holiday period, improving on last year,” said Jade Clarke, head of Westpac DataX. 

Private equity firm Anchorage Capital Partners is reportedly in the final stages of acquiring David Jones from Woolworths Holdings, the South African retail giant that bought the department store chain for $2.1 billion in 2014. 

The Australian Financial Review reported on Wednesday that Woolworths Holdings’ deal with Anchorage Capital was imminent and estimated to be between $120 million and $130 million, a fraction of what the company paid for David Jones eight years ago. 

Multiple reports suggest the deal will be done by Christmas. 

Inside Retail contacted Anchorage Capital Partners about the reports, but they declined to comment. David Jones had not responded to Inside Retail’s request at the time of writing. 

Speculation about the sale of David Jones has increased in recent months, following reports in April that its parent company had been meeting with banks. 

It comes after a tough few years for the department store, which was impacted by forced store closures during the Covid-19 lockdowns, and a failed foray into food halls, which were shuttered after a strategic review in 2020. 

Scott Fyfe, the former CEO of Country Road Group, which is also owned by Woolworths Holdings, took over as CEO of David Jones in 2020. 

Since then, he has overseen the reinvigoration of the department store, including the refurbishment of its flagship stores in Sydney and Melbourne, and the exploration of new trends, such as fashion rental and resale. 

In 2021, the retailer reportedly turned a profit for the first time since 2018, thanks in part to a number of costly impairments coming to an end and the Australian government’s JobKeeper wage subsidies. 

In October, Woolworths Holdings’ CEO Roy Baggatini wrote in the company’s annual report that David Jones was “debt-free, self-funding, and has a clear roadmap to improving profitability”. 

As such, he wrote that Woolworths Holdings was now in a “favourable position to explore all future options in respect of this business, and how best to further unlock value for the group and our shareholders.”

According to the Australian Financial Review, Fyfe will remain CEO of David Jones after the sale is complete.

Brosa, the upmarket online furniture brand, has been placed in voluntary administration, citing a decline in trade since Covid-19 restrictions enabled consumers to shop at physical stores again. 

Last February, Brosa’s co-founder and CEO Ivan Lim told Inside Retail the business grew more than 100 per cent last financial year, in line with other online furniture retailers. 

Fuelled both by existing customers increasing their order frequency and average order value during the pandemic, and new customers, who sought out online furniture retailers when stores were closed, the company seemed assured of success, its sales tripling. 

“There’s still so much growth, and we are really fortunate that we built a leading position as far as a digital-first experience goes for home and living,” Lim said.

But this week the dream was over, with KordaMentha Restructuring commencing a sale process for Brosa, and Richard Tucker and Michael Korda appointed as voluntary administrators.  

“The business faced challenges when sales declined after the Covid-19 restrictions were lifted,” said Tucker. 

“This caused short-term cashflow pressures after a period of phenomenal growth.”

KordaMentha is seeking expressions of interest in the business as a going concern. 

Tucker said Brosa had developed a strong customer base and technological capabilities “that would be an asset to many other furniture retailers”. 

“I expect that there will be strong interest in the Brosa business. The company was embarking on a campaign to reduce its inventory holdings and refocus itself as a make-to-order business.”

KordaMentha is planning a stock clearance from the company’s warehouses in Sydney and Melbourne. 

David Jones, the country’s highest profile department store, is in the hands of private equity investors after its South African owner Woolworths Holdings sold the company to Anchorage Capital.

The firm has agreed to buy the David Jones operating business – without its flagship Melbourne property – and says it will accelerate its growth aspirations despite the retail sector facing significant economic headwinds in 2023.

David Jones chief executive Scott Fyfe, who will stay on to run the business, said there would be more investment in its stores and customer experience but refused on Monday to confirm if Anchorage’s playbook would include job losses among its more than 7500 staff once it officially grabs hold of David Jones in March.

Woolworths boss Roy Bagattini at a press conference on Monday declined to disclose the sale price for the David Jones business, saying it was “complex” and that final sale price would “become clearer” in March.

He also declined to explain if the final price Anchorage would pay for David Jones would depend on how the department store performs over Christmas, but described the sale price as “a little bit of a moving target”.

However, sources close to the transaction said David Jones had been sold for around $100m, crystallising substantial losses for Woolworths, which spent eight years trying to turn around the department store.

Woolworths will retain ownership of the flagship Melbourne CBD store, which could be worth as much as $250m. It is believed Woolworths will also attempt to extract as much as $200m in dividends from David Jones before it is handed over to Anchorage.

Woolworths acquired the then ASX-listed David Jones for $2.1bn in 2014, at the same time buying out businessman Solomon Lew’s stake in Country Road for $209m.Woolworths will keeping that business, which also includes the Mimco and Witchery brands.

The Australian first revealed that the South African company had brought in investment banks in the hope of offloading the department store in early April, a move denied by Woolworths.

In buying David Jones, Anchorage gets control of Australia’s premium omnichannel department store owner, with 43 stores and two distribution centres across Australia and New Zealand, as well as a rapidly growing e-commerce business.

Mr Fyfe told The Australian that the company was “back under Australian ownership and we are going to unleash the full potential of this amazing brand”.

“Anchorage has got a very clear strategy for the business, it is a growth strategy which is really important, they’ve obviously come on board with their financial capital investment in the business which is fantastic,” Mr Fyfe said, although he declined to rule out job losses.

“We need to set this business up as a stand-alone business now, so I think it will provide great opportunities for our people.

“I’m not in a position to say whether there will be or will not be (job losses) at this point in time and clearly that is a discussion I need to have with Anchorage.”

Anchorage declined to comment. The private equity firm has extensive experience in retail and consumer investments over 25 years. This includes Anchorage buying Dick Smith Electronics from supermarket group Woolworths for under $115m in late 2012 and then only one year later flipping it on the ASX for a value of $520m. Dick Smith later collapsed, leaving creditors owned hundreds of millions of dollars.

Mr Fyfe said there were a number of strategies Anchorage and his management team could pursue to resuscitate earnings.

“The first place is the capital investments. The last few years has been very challenging for us in terms of the recovery from Covid and we have been capital constrained as we have worked through these periods,” he said.

“So an injection of new capital is fantastic for us.

“And we will use that to prioritise on consumer facing areas, whether that is a customer, or omni-channel business perspective, or an online perspective.

“And we will really scale this business up for success and we can now move at pace. Clearly having an ownership structure in Australia is really beneficial for us. And we can go on and really maximise the opportunity.”

He said he wasn’t daunted by the feared slowdown in spending in 2023 as the impact of interest rate rises, spiking energy bills and soaring inflation threatened to curtail discretionary spending – especially at a luxury retailers.

“We are very clear about the headwinds that are coming, particularly recent interest rate rises that put challenges on consumer confidence and consumer spending,” Mr Fyfe said.

“We have got strong momentum, I’ve been really encouraged by our trading through Black Friday, Cyber Monday and into peak Christmas trading both from a physical and a digital perspective, probably actually more from a physical point of view because we really invest in our premium luxury assortment. We have actually seen consumers trading up.

“We are very aware of calendar year 2023 there will be some headwinds, and we are constantly focusing on value for money across this assortment we offer and making sure that customer base – who have got a higher affluence than the average in Australia – really stick with us.”.

Mr Bagattini, who was brought on board as CEO in 2020 to fix and ultimately sell David Jones, said the acquisition hadn’t turned out as initially envisaged.

“David Jones is just a phenomenal brand. It is an iconic retailer. It’s stature as an iconic retailer just goes on forever. And when you part company as it were there’s a level of sentimentality,” he said. “At the end of the day I’m feeling good about the fact that we are able to set David Jones up with a very positive opportunity to drive forward.”

He declined to name the actual total sale price, only saying it would be more than David Jones current value of $290m in its own accounts – which includes the Melbourne CBD store.

In the years following the acquisition, led then by former Woolworths chief Ian Moir, there were more than $1bn in writedowns. The company launched, and quickly ended, several strategic initiatives including opening dozens of David Jones food courts and locating food services in BP service stations.

The latest accounts showed David Jones had a net profit of just $14.5m in 2022, from $84.3m in 2021 – an 82.7 per cent decline.

It’s not by chance that the only person actually named in the press release announcing the sale of iconic department store David Jones to private equity firm Anchorage Capital Partners was Scott Fyfe, who has led David Jones since October 2020 and will continue to run the business for its new owners.

While sources said Anchorage managing partners Beau Dixon and Simon Woodhouse have led the transaction for the private equity firm over a marathon 18 month process, the pair was not speaking publicly following the deal.

This was a deliberate choice to emphasise how central Fyfe is to Anchorage’s decision to pay South Africa’s Woolworths Holdings Limited a reported $100 million for David Jones.

In the eyes of Anchorage, Fyfe is one of three keys to the turnaround that Anchorage hopes to execute.

Fyfe, who arrived in Australia in 2017 to run Woolworths’ other big Australian investments, Country Road Group (which also owns the Mimco, Witchery, Politix and Trenery brands), is seen as having built good relationships with the Australian retail ecosystem of suppliers and supply chain partners.

The veteran Scottish retailer, who spent 20 years at iconic British retailer Marks & Spencer, is viewed by Anchorage as having delivered the first stages of a strong turnaround at David Jones in the last year or so, tweaking the group’s store portfolio, reducing costs and improving customer experience.

Fyfe’s growth plan, which is called Vision 2025 and seeks to make David Jones a more integrated omnichannel retailer, will largely remain in place. But what Anchorage will bring is capital and focus – this is the second plank of the turnaround strategy.

Woolworths has been an increasingly distant owner of David Jones, both geographically and with the level of resources it has been prepared to inject into the business.

David Jones has clearly been more of an annoyance to the Woolworths board than an asset.

But for Anchorage, the David Jones turnaround takes centre stage. Rather than an owner making decisions from Cape Town with limited knowledge of the store network outside David Jones’ flagship Sydney and Melbourne stores, Fyfe can now call on an owner who is focused on making quick decisions, knows the entire business, and has capital to invest.

That is no small change.

Granular approach

The Anchorage camp emphasises that it will not be taking dividends out of the business along the way – all profits and cost savings will be reinvested into Fyfe’s turnaround plan.

A focus of this investment will be improvements to David Jones’ broader store network, not just its flagship stores. Taking a more granular approach to getting the right mix of range, staff and customer experience across every floor of every store, will be a big part of this process.

A good example is at the Warringah Mall store in Sydney, where Fyfe and his property team were able to work with the centre’s landlord to improve the operations of the store itself and the mall more broadly.

Ironically, Anchorage was beneficiary of this through the Brand Collective retail business it sold last year; Brand Collective had one of its Shoes & Sox children’s footwear stores at the mall, and noticed a clear pick-up in foot traffic after David Jones invested in store improvements.

This model of working with partners such as landlords and concession holders in David Jones stores to help fund improvements will no doubt be an important part of the turnaround.

The retail industry is legendary for its ability to use other people’s money to fund their own businesses, be it through supplier rebates, promotional levies, or jointly funded redevelopment deals.

Mostly, such deals reflect the symbiotic relationship between retailers and landlords, and between retailers and brands – all parties need each other to prosper.

But as we saw when the Dick Smith retail business collapsed in 2016 – two years after Anchorage sold out – in part because it became too reliant on supplier rebates in its procurement, such relationships do need to be carefully managed.

The final plank of Anchorage’s David Jones turnaround is the brand’s heritage, which manifests in a large and loyal customer base and an unusually loyal pool of employees, who will be key to accelerating Fyfe’s turnaround plan.

Unique challenges

As private equity firm TPG found with its purchase and sale of Myer in 2009, owning and running an iconic retail chain brings its own unique pressures.

But the flip side of that coin is this is not some investment in a mid-sized industrial business that no one cares about – consumers will feel invested in Fyfe and Anchorage’s plans to improve customer experience, and integrate online and bricks and mortar channels in seamless ways.

Those customers – who are typically more well-heeled than your average consumer – may also be important in weathering any economic downturn next year.

Of course, history can be a burden too, and the track record of private equity in retail in Australia is hardly anything to get excited about.

As The Australian Financial Review’s retail guru Sue Mitchell pointed out recently, private equity-backed retailers that have collapsed or gone into voluntary administration in the last decade include Harris Scarfe, Seafolly, Tigerlily, Crumpler, Ginger & Smart, PAS Group, Colette by Colette Hayman, TM Lewin, Toys R Us, RedGroup and Dick Smith, which went under two years after Anchorage sold a controlling interest.

The counterpoint to that is Anchorage’s recent experience with Brand Collective, which Simon Woodhouse chaired. The firm was able to help the footwear retailer reset its business and then grow, with particular success in online sales, a category that was previously seen as an omnichannel laggard.

Anchorage held that business for seven years before it was sold to Larry Kestelman’s private family office last June.

While the COVID-19 pandemic did interrupt that sales process, the view from inside the Anchorage camp is that there is no deadline on an exit from David Jones. The firm sees this as a back-to-basics turnaround that will require time.

That’s sensible. Recent history says hunting quick wins in a business like David Jones – extracting outsized dividends, cutting costs too hard, failing to reinvest in a retail sector that is in constant flux – only creates pain down the track.

The reported terms of this transaction are evidence enough of that; Woolworths paid $2 billion for this business and will walk away with an estimated $500 million, the vast majority of which will come via a deal to sell the underlying property of David Jones’ Bourke Street store in Melbourne.

In the retail sector, building resilience and sustainable profitability is a slog. Anchorage’s capital will be crucial for David Jones, but its patience could be even more important.

It’s 12pm in Sydney’s central business district, with only four days to go until Christmas, and shoppers seem to be in short supply.

There’s a long queue outside Haigh’s Chocolates on George Street and a longer one outside luxury retailer Hermes a few streets down.

But most people crossing the retail hotspot of Pitt Street Mall are visibly missing the tell-tale pre-Christmas shopping bags on their arms.

“For the kids, it’s just one big present and a few other smaller things on the side,” says Brooke Weston, who’s just been to Zara, Culture Kings and Foot Locker.

“Probably a bit more conscious on the spending this year because we don’t want to go over the top given the climate. It just feels a bit unusual to be spending more.”Over at the Queen Victoria Building, Tim Gurto, a computer programmer and Ella Zmudzki, a product manager are off work and dressed up for an afternoon of Christmas shopping. The haul so far is iPhone stands for Zmudzki and a tie for Gurto.

“I don’t think mine’s been affected that much compared to last year,” says Gurto.

“Australia seems to be doing fairly OK compared to other countries. We were just in the US and everything is much worse there – clothing, food, cocktails which once you add up everything are $40,” he said.

Weston and Gurto – one sombre, one upbeat – are typical of shoppers who retailers (and their investors) have been trying to get a read on in the lead-up to the Christmas period, which can account for two-thirds of their sales for the whole year.

Also upbeat is The Australian Retailers Association, which is tipping Christmas retail sales (November 1 to December 24) to be 6.4 per cent higher this year at $66 billion, including apparel, household goods, restaurants and others. It reckons inflation will weigh on retailers’ margins and spending, but not until next year.

Economist Frank Shostak disagrees. He thinks the 2022 Christmas shopper has lower savings after central banks’ money printing in recent years, which he thinks has also left businesses confused.

“I doubt that retailers can have a stronger period than last year. Obviously, surprises can happen, but people are poorer and if it happens, it will be at the expense of the next year in a big way.

“It would be totally irresponsible. It’s like somebody with little money, goes to buy Mercedes and nice luxurious stuff and he doesn’t have money enough for food and can die of starvation,” Shostak said.

Fund manager Richard Ivers, who can invest in ASX-listed retailers from his fund at Prime Value Asset Management, has a similarly pessimistic view of shopping appetite.

He went defensive on retail early in the year, keeping small allocations to kitchen appliance-maker Breville and beaten-down stock Hello Travel.

“We are hearing retail [was] strong up to a month ago [but we are] not sure about the last three weeks,” Ivers said.

“Our concern heading into 2023 [is there are] some early signs the economy is softening and rate rises continue to pressure household cashflows, and so we don’t want to be holding highly discretionary names.

“Retailers have benefitted from strong demand and less discounting – which supports margins. Both could reverse in 2023,” he said.

Brick-and-mortar’s hot, e-commerce slowing

Without a crystal ball and with most Australian retail giants publicly listed and gagged on sharing bellwether pre-Christmas sales data, smaller retailers are investors’ best bet for getting a read on the spending this year.

Suitcase seller July straddles the retail-travel divide and is a direct beneficiary of travel reopening, but its shoppers often make a purchase months before they are due to travel.

Its co-founder Athan Didaskalou says its customers are usually fashion-conscious women making between $100,000 to $250,000 a year, and they seem to be doing just fine.

“I don’t think rate rises are affecting their appetite. I know discretionary retail should be afraid of inflation. But by the time they come to us to buy luggage, they’ve already spent $3000 to $4000 on things like tickets and flights.

“People are just a little sceptical of what they see in the news. They just want to get on with their lives,” Didaskalou said.

He says July’s brick-and-mortar stores are pumping, making up 32 per cent of November sales (compared to 10-15 per cent last year) as shoppers head out and try to skip the Australia Post delays. Supply chain issues haven’t been a problem, although it had to compete for production slots at factories with other businesses building up inventory.

Staffing has normalised and costs of shipping containers are back to $8000 to $10,000 each, which is higher than $2000 to $3000 before the pandemic but still half of the $20,000 odd retailers had to stump up last year.

For shoppers that do splurge this year, shirts and skirts online retailer Ozsale is seeing a similar preference for brick-and-mortar over e-commerce.

“It’s been a bit of a 180-degree turn this Christmas period. Right now, they want to go out. E-commerce will continue to grow, but it’s just going through a funny period now,” OZsale chief executive officer Kalman Polak said.

Polak says there’s no doubt cost of living pressures, including servicing mortgages, are weighing on shoppers’ minds. Things they wouldn’t have thought twice before buying in the pandemic have become a conscious decision to be pored on. Meanwhile, retailers will have to think about cost pressures of their own.

“Last year it was about getting a handle on the stock. This year supply has not been a problem at all but the big challenge is keeping prices in check, from everything like purchasing automation for warehouses to Australia Post deliveries,” he said.

“If I think of 2023, retailers will be tightening their belts a lot to combat the costs. As a result, we may see lay-offs.”

The COVID pandemic has given us new words, record-low interest rates and the largest explosion in government debt outside of World War II - and is continuing to upend the way Australian households spend their money.

An update by the Australian Bureau of Statistics to the way it tracks inflation shows that almost three years after the start of the pandemic, consumers continue to spend more of their weekly budgets on everything from hairdressing to cavoodles while new shoes and books are left on the shelves.

Every year, the bureau reviews the nation’s collective spending patterns to help it accurately weight the various components of the basket of goods and services that are tracked to determine the rate at which consumer prices are changing.

Traditionally, changes in the spending patterns of Australian households occur gradually.

When the bureau first compiled its measure of what was described as the “interim retail price index” in the late 1940s, food accounted for 31.2 per cent of the total spending basket.

Meat made up 8.7 per cent of the basket while dairy products - milk and cheese - accounted for 8.2 per cent. Housing’s share of spending was 11.6 per cent, just a little more than the 11 per cent that households devoted to alcohol and cigarettes.

In its 2017 update, spending on food and non-alcoholic drinks accounted for just 16.1 per cent of the inflation basket. Meat and seafood had fallen to 2.2 per cent while dairy products were down to less than one per cent.

In its stead, expenditure on housing - which includes utilities such as electricity - had grown to 22.7 per cent.

Then along came COVID. By 2020, as the country began a nationwide housing frenzy due to record-low interest rates, housing accounted for 24 per cent of the entire inflation basket. Food spending, which lifted during the COVID lockdowns of the period, increased to its highest proportion since the turn of the century to 17.4 per cent.

In its most recent update, the bureau reports food has edged down from its 2020 pandemic hoarding highs but Australians are still putting more of their weekly grocery bills towards such things as beef, chicken, milk, coffee, soft drinks and vegetables.

Eating out, be it in a restaurant or via takeaways, is now at its highest share of our weekly spending since the bureau started officially measuring this sector in the mid-1970s.

As a proportion of the inflation basket, eating out accounts for 6.81 per cent of total spending. That is an increase of 16 per cent over its pre-pandemic level and a bigger share of our expenditure than petrol (3.6 per cent), domestic holidays (2.4 per cent) and electricity (2.2 per cent).

Our spending patterns changed in other ways. The surge in lockdown pets, and their associated veterinary bills, means the proportion of our spending devoted to furry friends and their health needs is 28 per cent above its pre-pandemic levels.

Expenditure on clothing is 11 per cent up (although the share devoted to shoes is down by 11 per cent), the share of our spending devoted hairdressing and personal care is up by 16 per cent while health spending is 16 per cent higher.

To make way for this extra spending, the proportion we devote to other goods and services has fallen. The biggest drop has been on transport fares, down 53 per cent on 2017 levels while the share devoted to the cleaning, repair or hire of clothes has dropped by 42 per cent.

International travel came to a standstill when the Morrison government closed the borders. Despite surging by 2213 percent from its 2020 level, the share of expenditure devoted to overseas trips is still down 41 per cent on its pre-COVID level.

AMP senior economist Diana Mousina said COVID and its restrictions on our way of life had changed our spending patterns which were now reflected in the inflation basket used by the ABS.

She said spending should return to pre-pandemic patterns, but it was taking longer than expected and could change even more as higher interest rates start to bite.

“We’ve seen the price of goods go up and that’s contributing to the inflation we’re seeing. I think services are going to return as spending on goods falls back as interest rates continue to rise,” she said.

“Retail spending remains at elevated levels, and you can see that in the inflation figures, but over time it is going to come back a bit and we’ll see that in a change in our spending patterns.”

While housing’s share of the inflation basket reached an all-time high in 2020, it has now fallen below its pre-pandemic level.

The bureau does not include house prices in its measure of inflation, but takes in rents, utilities and costs associated with purchase of newly built homes.It said that while spending on rents had grown over the past two years, total expenditure across all goods and services had grown by more. Electricity consumption has also dropped which, combined with rebates offered to households by some states to offset surging prices, had pushed down its share of the inflation basket.