Consumers are facing higher prices for fashion and electronics as the falling Australian dollar pushes up the costs of imports and forces a shift in strategy for the embattled Australian retail industry.
The Australian dollar is down 16 per cent against the greenback over the past six months and buying close to 78 US cents, well below the near parity consumers have been used to in recent years.
Citi’s retail analyst Craig Woolford said local retailers had a few ways to respond.
“They could increase their prices, they could try to drop their promotional intensity and reduce the level of discounting,” he said.
“And in some categories apparel would be a good one. They could change their product specifications to maintain their price points – ultimately lower quality.”
If retailers go down the path of lifting prices, that will happen next season, with most operations having hedged against the currency for the coming months.
“I think we may see a small amount this winter which would kick off around February, but more likely the summer which would be around August this calendar year,” Mr Woolford said.
“In electronics it’s the cycle so you may see new products launched in the middle of this calendar year at a higher price point.”
Importers most affected by dollar movements
Companies that directly import goods from China, where the currency is pegged to the US dollar, are most affected by the local currency’s moves.
That means most of the vertically integrated Australian clothing retailers like Solomon Lew’s Premier Investments, Specialty Fashion Group and PAS Group, as well as electronics sellers.
PAS Group owns labels Review and Metalicus among others.
Chief executive Eric Morris said as the company’s hedging unwound, price increases across some of the brands would be inevitable.
“We will only increase prices within brands where it makes sense to do so. Where possible these will be kept to a minimum, but what we won’t do is compromise on quality,” he said.
Webster Holdings is a similar operation, which runs Marcs and David Lawrence.
The company owns its own manufacturing facility in China and employs 1,100 people in Australia.
Chief executive Peter Barry did not expect any price movement for around six months.
“In fact in our instance we’re actually looking at moving some of our prices down. Once you look in to the second half of the year what will happen is you’ll see some price readjustment,” he said.
As for those price increases, they might not be as bad as typically would be expected.
Competition amongst bricks and mortar retailers is likely to keep a lid on hikes at the checkout counter.
“But generally speaking prices don’t go up as fast as they come down,” Mr Barry said.
“There will be a little bit of hesitation from retailers around what the propensity is for customers to absorb price increases.”
Shoppers likely to flood back to Australian retailers: Greenberg
Where consumers are seeing the immediate impact from the falling Australian dollar is at offshore retailers, where online prices have moved up in concert with falls in the Australian dollar.
Retail is moving quickly. We’ve got work to do and if we rest on our laurels we’re in a bit of trouble.Paul Greenberg, founder of DealsDirect and executive chairman of NORA
Sales at overseas online stores account for about 25 per cent of total retail sales.
Paul Greenberg, founder of DealsDirect and executive chairman of NORA, was expecting that percentage to drop as shoppers flooded back to Australian retailers.
But Mr Greenberg said it would be product innovation, not just price, that would drive retail sales at local outlets in the long term.
“The [high] Aussie dollar has been a bit of a blessing in disguise. It’s forced us to act and act well and we’ve done that,” he said.
“Retail is moving quickly. We’ve got work to do and if we rest on our laurels we’re in a bit of trouble.”
Mr Barry had been investing heavily in the company’s online stores and was hoping the Australian-designed product would attract spenders.
“It will come back to where there is great product. Customers will always have a propensity to look for something that’s new or something that’s different or innovative,” he said.