I haven’t written a blog for a while, due to a number of reasons not the least being the growth of Northcape. We have been growing strongly and are presently in the midst of moving into a larger office and hiring new staff, so it is all very exciting.
Like most of you, I have been watching what has been happening in the retail industry, particularly over the past 12 or so months and just could not sit by any longer without venting my anger and dismay over “spin” coming out of the main stream media.
I don’t want to be a purveyor of doom and gloom, but the Australian retail industry is doing it tough at present – there are a number of reasons for this, not the least being new international competitors and a few successful local operators taking market share, however I think the biggest issue is that consumers are loaded up with too much debt and are simply not buying and consuming as much as they used to. Wages haven’t moved in years and the real unemployment rate is probably around 10% not 5.7% as the media tells us.
With the recent reporting season just finished, anyone would think that the Australian economy is doing great, but once you scratch the surface, it’s not that good at all.
I recently read an article about how strongly a certain retailer’s share price “surged” and this led to the ASX moving higher. After reading another article about this same retailer’s actual financial results for the half, it turns out that underlying profit had dropped significantly and as a result, dividends were going to be slashed. Apparently their share price surged (up 4%) – perhaps investors thought that the worst was now behind them, I don’t know. From reading the headline article though, anyone would think that the company had a cracker of a year, but the complete opposite was true.
I also read some other headlines about a major retail landlord who apparently had another excellent result (given the state of the industry, I actually think they did do an excellent job of managing their business), however it wasn’t because of strong revenue growth, it was mainly due to cutting overheads and lower interest rate costs. Again when I read the headlines, it sounded like the retail industry was chugging along very nicely and retail was strong – what utter nonsense ! Whilst this particular retail property group is in my opinion a very good manager, the fact was revenue was down on last year by millions and millions of dollars.
Why would this be….. would it have anything to do with several large retail chains going to the wall over the past 12 months or perhaps many prudent retailers re-negotiating their rents down ? Last year about a dozen large retail groups collapsed (you know the names.) – since the beginning of 2017, five more retailers have either gone into administration or liquidation and word on the street is, there are more likely to fall over in the first half of this year.
There were many other retailers and other companies in different sectors who on the surface had very positive financial results for the half to December 2016, but after drilling through the detail, most of these companies had significant decreases in underlying profit, but why was this so?
I believe it is because the Australian economy is in pretty serious trouble and the retail sector by extension, is also. We are heavily burdened with debt, governments and households alike, in fact Australian household debt to income ratio is now nearly 190%, the highest on record and one of the highest in the world !
Australian national government debt is now well over half a trillion dollars !!! If you follow main stream media commentators, they all say that this manageable and much lower proportionally to many other advanced economies around the world. What a warped view that is…. it just means most of these other country’s governments are hocked up in way too much debt and we just happen have a bit less, yeah very encouraging.
The sooner we face up to the reality of what is happening, the sooner we can take action to try and arrest the problem – unfortunately with all the uniformed dribble coming out of the main stream media, most people believe everything is great, there’s nothing to worry about, we can just keep racking up the credit card, it’s all good.
My tip for the main stream media is, stop the “spin”, you are only adding to our financial problems !!!!!!