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Is this Christmas ‘scrooged’?

It is the season to be merry but the combined impact of the financial market fallout from the European Union, the related economic malaise and the outlook for retailers, suggests that Christmas again will be ‘scrooged’.

The case is gradually building for a December interest rate cut despite a pointed statement by Reserve Bank Assistant Governor Guy Debelle at a recent Sydney conference. 

Focusing on mortgage rates he said that they are "... about where we want them to be, otherwise we'd do something about mortgage rate competition".

When the RBA developed its view on where they wanted rates, even only on Cup Day, China looked like it had avoided a hard landing, the US was on track for possibly three per cent growth and they would not have thought that the debt contagion in Europe could have spread to France, let alone Germany.

Well, this week, the German 10-year rate on their government bonds went over two per cent and only 60 per cent of the issue got sold. You wouldn’t have laid money on that happening on Cup Day.

Right now China’s manufacturing data looks weaker than expected and the US growth rate came in at two per cent. Meanwhile at home, retailers are bracing for a Christmas with poor tidings.

An Australian Retailers Association member survey found festive sales would be “only a moderate 2.2 per cent higher than last year”. And that was based on a weak Christmas trading period last year.

Retailer Gerry Harvey said sales slumped immediately after the Cup Day interest rate rise we saw 12 months ago. That’s why the rate rise was reversed on the same day this year.

David Jones, one of the best brands in the country, is really suffering with the September quarter sales down a whopping 11.2 per cent.

And the company's CEO Paul Zahra says profit could drop 15 to 20 per cent in the first half of the financial year.

Not surprisingly, the share price fell 5.4 per cent to $2.81 on the day these figures were reported.

Zahra blames weak consumer sentiment, stock market woes, a weak housing market and a very high savings rate. Most of this could be put down to the Reserve Bank's excessive interest rate policy.

However, Zahra left a couple of other reasons out.

DJs has poor customer service compared to its past. It does not have a credible online strategy and I would not know Paul Zahra if I fell over him.

This week I interviewed US business legend Jeff Taylor who founded employment website Monster.com.

He said a leader has to have “a great product and be prepared to get out in front of your brand”.

When Richard Goyder brought Coles into Wesfarmers he put himself out there and talked up his company.

When Gerry Harvey built up Harvey Norman, he was everywhere. Retail is an intimate experience and at the moment DJ’s customers don't feel the love and it’s the CEO's job to rebuild the relationship.

Christmas needs RBA help but some retailers need to help themselves.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, November 28, 2011

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