Consumer electronics and IT retailers could be headed for strife this month after news that the Reserve Bank of Australia (RBA) has hiked interest rates by 25 basis points to 7 per cent – signalling the highest interest rates in the country for 11 years.In an industry that survives mainly on ‘pleasure-items’ such as TVs, MP3 players, digital cameras and navigation devices, the consumer electronics market could be the hardest hit, with IT and computer retailers also feeling the effects.
According to the Australian Retailers Association (ARA), the economy is still yet to feel the flow-on effects of the last rate rise which happened last November, up 25 basis points to 6.75 per cent.
Today’s rate rise will put more strain on an already tight retail economy, which is typically at its lowest in February after the January post-Christmas sales, says ARA.
“February brings the triple cash drains of Christmas credit card debt due, BAS statements to be filled and paid and back-to-school costs. This rate rise will only put added pressure on families with mortgages and small businesses,” said ARA executive director, Richard Evans, in a statement to the press.
“With retailers just coming off the peak of trading demand which happened to fall during the Christmas/Boxing Day period, they are now experiencing the cyclical downturn. For smaller retailers, this rate rise will be felt almost immediately in daily takings.”
According to Evans, the economy is beginning to see tightening in some categories of discretionary spending, with petrol prices consistently above $1.40 per litre and added pressures from drought and floods.
However some retailers are taking the rate rise in their stride, claiming that consumers have become immune to pressures of rates on their spending due to the unusually-common RBA announcements – 10 in the past five years, to be precise.
When November’s interest rate rise was announced, electrical retailer JB Hi-Fi seemed nonplussed at the news.
“Today’s rate rise might take some money out of the economy, but it will be a relatively small amount. There has been a lot of commentary saying it will affect expenditure big time, but the last five interest rate rises haven’t affected consumer spend at all,” JB Hi-Fi managing director, Richard Uechtritz, told SmartHouse News.
“We’ve just experienced our strongest sales in years. Will another 0.25 per cent make a difference? I don’t think so. Rates are still relatively low – they might be higher than a decade ago, but they’re still low,” said Uechtritz.
JB Hi-Fi is set to post its half-year earnings for the 2008 financial year next week.
According to Uechtritz however, consumer electronics products don’t get hit nearly as hard as an outsider might think, in times of rate rises.
“Rate rises don’t affect companies in our sector, because we have goods that people want. They won’t give up buying their plasma TV or their iPod just because rates have risen,” Uechtritz said.
Kay Spencer, the managing director of electrical and appliance buying group, Narta, which serves retailers such as Bing Lee, Clive Peeters and Bi-Rite, agreed that an industry in the lead-up to Christmas won’t be affected by a rate rise, as people will do their gift shopping regardless, however today’s rise could impact heavily.
“I think the impact will hit harder in the New Year,” she told SmartHouse News.
According to the ARA, the fact that the average consumer will spend $50 more on their mortgage per week will rattle retail spending, which will upset retailers.
“Retailers want sustainability – not peaks and troughs in spending. And this rate rise is only going to make February 2008 even tougher on consumers. Retailers love their cash registers ringing loud and often. However, we do caution consumers to be realistic when it comes to spending and not to extend too far on credit,” Evans said.