5 December 2016

Over the past week Australian shares were 1.2% lower. Shares in developed countries were 0.7% lower with the US market down 1.0%. Shares in emerging markets lost 0.3%. The Australian dollar was 0.2% higher at 74.57 US cents. The 10 year bond yield in Australia was 0.10% higher at 2.86% while in the US, the 10 year bond yield closed the week 0.03% higher at 2.38%. The oil price gained 12.2% to 51.68 US dollars per barrel.

As we face the stressful problem of what to buy family and friends for Christmas, spare a thought for retail operators. Where some businesses have nice smooth revenue streams, for example utilities and banks, the retail sector experiences highly seasonal sales. This is illustrated in the chart below.

Graph We can see that monthly retail sales around Christmas are often 30% greater than the rest of the year. This creates challenges for retailers. First there’s the stress that the seasonal uplift in sales may not eventuate, even though it ‘always’ has. Many retailers may run at low or even negative profits throughout the year and Christmas sales are crucial to their overall outcome.

Then there’s the need to plan ahead with stock, hopefully picking this year’s trends and having plenty of stock on hand. Getting this wrong can result in poor sales and a crippling overhang of unloved inventory.

Finally there’s the need to have staff arrangements in place to meet the surge in Christmas shoppers – big slow moving queues are a turn-off for busy shoppers. This is generally met through casual work which can be unwound post Christmas sales.

So while you are stressing around your own Christmas gift purchases perhaps spare a thought for all the retailers at this time of year.

Signing off
David Bell

Past performance isn't necessarily an indicator of future performance.
All data sourced from Bloomberg.