Businesses look for a Christmas boost

Retail and services sectors shrug off consumer concerns 

7 October 2014

Business owners are optimistic about seeing a jump in sales during the run-up to Christmas, with retailers and the services industry lifting their forecasts for the final quarter of the year despite signs that consumer confidence in Australia is faltering.

According to Dun & Bradstreet's latest Business Expectations Survey, 47 per cent of businesses expect higher sales levels compared to last year, while 11 per cent forecast a decline and 42 per cent similar trade. This positive outlook has lifted the sales expectations index to 36.2 points, up from 7.9 points at the same time last year.

Despite disappointing figures from the ABS showing sales growth of just 0.1 per cent during August, concerns over consumer confidence, and a worrying rise in Dun & Bradstreet's Consumer Financial Stress Index, the retail and services sectors expect consumers to open their wallets in the months ahead. The retail sales index has risen to 27.1 points, up from 9.7 points last year, while the services sales index has jumped to 43.4 points, up from 4.0 points in 2013.

Expectations for increased has trade lifted across all other sectors surveyed, with the sales index for wholesalers hitting 41.7 points (up from 8.8); construction: 29.1 points (up from 0.2); transport, communications, utilities: 41.8 points (up from 8.1 points), and finance, insurance, real estate: 39.7 points (up from 7.2).

BEX Q4 2014 - final - chart 1
 

While an increasing number of businesses are expecting to sell more in the December quarter, discounting is not planned. Twenty-four per cent of businesses intend to raise the prices of their goods and services, while six per cent will cut prices, leaving the majority unchanged.
 
These pricing plans have lifted the selling prices index to 17.5 points, from 10.3 points last year, although it remains far from pre-GFC levels and well below its 10-year average of 27.1 points.

BEX Q4 2014 - final - chart 2
 
According to Dun & Bradstreet director Steve Brown, businesses look set to finish 2014 in relatively healthy shape.

"While we often see an uptick in business expectations for the Christmas period, the current outlook appears stronger and more broad-based than recent years," said Mr Brown.

"In addition to higher sales and profits, expectations for increased capital investment and employment are stronger than in 2013, borrowing intentions are stable, and the proportion of businesses more optimistic about growth this year, compared to last year, is holding at the 60 per cent mark."

"These latest numbers consolidate 12-months of generally positive expectations from the business sector. Questions remain, however, on the health of consumer finances, and whether Australians are willing and able to increase their discretionary spending over the next few months."

BEX Q4 2014 - final - chart 3
Despite expectations of rising sales and steady profits, cash flow continues to be an area of concern for businesses, with 31 per cent indicating it is the issue most likely to impact their operations during Q4 2014. This follows last month's company insolvencies report from ASIC which revealed that inadequate cash flow or high cash use was the most common cause of business failure in the 2013-14 financial year.

Underscoring the difficulties facing businesses in regulating their cash flow are additional findings from D&B's Business Expectations Survey that show 35 per cent of businesses have had a customer or supplier become insolvent or otherwise unable to pay them during the year.

Trade suppliers are the most likely to be overlooked by businesses unable to meet all of their payment obligations, followed by a credit card and phone bill.

BEX Q4 2014 - final - chart 4
 

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