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Retail slump 'off the scale' as stunted wage growth and bushfires turn shoppers off

ABC NEWS logo ABC NEWS 27/02/2020 By Carrington Clarke
a man smiling for the camera: Ishka CEO Toby Darvall says last Christmas was the worst "we have ever been through". (ABC News: Carrington Clarke) © Provided by ABC NEWS Ishka CEO Toby Darvall says last Christmas was the worst "we have ever been through". (ABC News: Carrington Clarke)

The last few months have been the worst on record for some Australian retailers, like homewares chain Ishka, which went into administration last week.

CEO Toby Darvall said he had never seen conditions like it.

"This has been by far the worst Christmas that we have ever been through," Mr Darvall told 7.30.

"I've traded through three recessions, the Asian financial crisis, the global financial crisis. You expect ups and downs as a retailer, that's what we sign up for.

Pictures: What the average person earns in different countries around the world

"But what we've seen over the last few months was just off the scale.

"I've never experienced anything like it."

PHOTO: Homewares chain Ishka has gone into administration. © ABC News PHOTO: Homewares chain Ishka has gone into administration.

Since the start of 2020, a raft of Australian businesses have gone under, including big names Harris Scarfe, EB Games, Bardot, Jeanswest and Colette.

"There's a lot of reasons that we've got to this position. Retail has been flat for a few years," Mr Darvall said.

"However, what we saw from mid-December onwards, when the fires first started in New South Wales, really turned into the perfect storm. And that was almost the final straw for many retailers."

Mr Darvell believes consumers have been nervous about spending money because of the bushfires and coronavirus plus concerns about job security and flat wages growth.

He hopes the administrator finds a way to keep his business open.

'Households are trying to save'

PHOTO: Jo Masters, chief economist at EY, said more people are trying to save and pay off debts rather than spend. © ABC News PHOTO: Jo Masters, chief economist at EY, said more people are trying to save and pay off debts rather than spend.

Many people are saving rather than spending. Last year, the proportion of income being saved jumped from 2.7 per cent to 4.7 per cent in one quarter.

New analysis from EY shows a further 1 per cent rise in the saving rate would lead to a $4.5 billion reduction in spending, and in turn lead to more than 1,300 job losses in the retail sector.

The only growth in spending is because of Australia's relatively high population growth. Per capita retail sales have fallen by 1.1 per cent over the past year.

Jo Masters, chief economist at EY, said last year's tax rebate and interest rate cuts appear to have failed to encourage spending.

"It looks like households are trying to save, trying to pay down debt, to give themselves a better balance sheet," she said.

PHOTO: Grant Cowle, owner of The Hardware Store, says customers are spending less. © ABC News PHOTO: Grant Cowle, owner of The Hardware Store, says customers are spending less.

Grant Cowle owns The Hardware Store, with two locations in Sydney. His doors are still open but he says customers have cut their spending.

"It's quite stressful," Mr Cowle said.

"I think everyone just feels a bit insecure. You've had a lot of people who are working on contracts, so they don't have long-term employment."

With Australia holding record levels of personal debt, even with low interest rates, households are less likely to spend money on things they do not need.

"Household debt is above 190 per cent of disposable income. It's a record high," Ms Masters said.

"So, all of a sudden I'm worried about my job and I'm holding a lot of debt. And I've also just realised that house prices don't always go up. So I'm looking at my balance sheet and I'm looking at my spending.

"Wage growth has been quite weak and I think there is a sense now that that will be a permanent state of affairs. That's certainly playing into households' thinking."

PHOTO: Paul Zahra says the government should be focused on stimulus rather than surplus. © ABC News PHOTO: Paul Zahra says the government should be focused on stimulus rather than surplus.

With fears of a full-blown coronavirus COVID-19 pandemic, there is even more reason for households to be feeling pessimistic.

Paul Zahra, the former CEO of David Jones, said the Government should be focusing on stimulus, not surplus.

"We do need, I think, more Government support in relation to some sort of stimulus package or some sort of tax relief," Mr Zahra said.

"I think they're the two main levers they can use."

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