Nostradamus and 2015

fortune tellerIt is probably best to leave predictions to the likes of Nostradamus (Michel de Nostredame, 1503 –1566).

He was regarded as a prophet but did not see himself as one. Many believe that his predictions refer, for example, to the French Revolution, Napoleon, Adolf Hitler, both world wars, and the nuclear destruction of Hiroshima and Nagasaki. There is also consensus among popular authors that he predicted the Apollo moon landings, the death of Diana, Princess of Wales in 1997, the Space Shuttle Challenger disaster in 1986, and the events of 9/11.

But I and many of my colleagues feel it is incumbent upon us to try to predict the future at about this time each year despite not having Nostradamus’s talents.

Oil price

The worldwide glut has brought prices down to a level we have not seen for years. Paul Bloxham, chief economist at HSBC Australia, said on SBS on January 6 that this will put $12 per week into the pocket of every Australian family.

This disposable income, especially in the case of lower income Australians, will doubtless partly flow through to retail as long as the price of oil stays low. Whether this is good for the country and our GDP is not so clear because of the impact on exports such as coal which will drop in sympathy with the oil price. But as humble retailers we should take as much of the $12 per week as we can while it lasts.

Australian dollar

In November 2013 one of the leading bank economists predicted that the dollar would fall to about 85c by mid 2014. While his timing was a little out, he was pretty much on the money (pardon pun).

The lower dollar is good for tourism and exports, but lousy for imports. These price increases have to be passed on to the consumer if retailers are to survive, which means that a lot of merchandise will rise in price. If consumers want to buy it, they will need to pay the price and the extra $600 a year in their pockets if the oil price remains more or less where it is, will certainly help.

Interest rates

The drop in oil price means lower (or at least not higher) interest rates for the mean time. But the RBA will be watching carefully and rates will doubtless increase this year.

Terror

I wrote an article last year on retailers’ unpreparedness for terror attacks. I received a comment from one reader suggesting that I was scaremongering and touting for business.

Incidentally this article appeared before the Lindt Cafe siege and loss of life. Martin Pl in Sydney seems to be the terrorists’ preferred hunting ground. I do not have any figures, but it would be interesting to know what the performance is of Martin Pl retailers as opposed to the rest. We remain in touch with the Attorney-General’s office on this issue.

GST

Tony Abbott is on record as saying that the GST will not be increased in the first term of Government. The various States like the idea of a GST hike because they benefit. Forgive the scepticism, but Julia Gillard promised there would be no carbon tax. Either GST will increase sooner than later, or after January 14, 2017 regardless of who wins power.

Apart from the GST exemptions being reduced, the GST will probably rise to 12.5 per cent, which is silly, because it will then rise again to 15 per cent some time later.

LVIT
At the risk of boring readers to death, this debate has come and gone for years. At the moment it has raised its head yet again and sooner or later the LVIT will drop due to pressure from certain lobby groups including of course, the retail industry.

In summary, what effect will the above have on retail in 2015?

• The oil price will probably stay low for 2015 and the dollars saved by households will benefit retailers
• The AUD will probably hover in the 80s for most of the year and imports will be more expensive
• Interest rates will remain low
• Terrorism is impossible to predict, but retailers need to prepare themselves
• The GST could rise before January 2017. If and when it does, there will be a flurry of spending depending on how much notice we get
• The LVIT will drop but will have no material effect on retailers in Australia because the GST pales into insignificance compared to overseas on line prices.

I hope Nostradamus is not turning in his grave!

Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at stuart@impactretailing.com.au or 0414 631 702

Comments

2 comments

  1. Pat posted on January 9, 2015

    The biggest issue around LVIT is not so much the 10% at this end but the fact that Australian buyers are not paying tax on purchases from overseas. If one of my customers buys one of our Danish products from Denmark they avoid that country's 25% VAT and our GST. So they pay no tax at all. Simply because it's coming from overseas. If they were made to pay the tax from whichever country they purchase from then global online pricing would be much closer than it currently is and the incentive to purchase from overseas would be diminished. If governments really wanted to collect more tax and create a more level playing field then they'd collectively legislate to make retailers charge a consumption tax on purchases from other countries.

    • Stuart Bennie posted on January 9, 2015

      Excellent point. Thanks Pat. Stuart

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