Retail Industry

Topics: Retailing, Department store, Barriers to entry Pages: 10 (2457 words) Published: March 9, 2015
University of Technology, Sydney
Myer Holdings Limited
Financial Statement Analysis: 22319

Group Assignment Part 1

Macroeconomic & Industry Analysis

Macro EconomicAnalysis
Worldwide economic turmoil spread in 2007 as a result of the Global Financial Crisis (GFC), with its effects continuing to be felt by many industries and economies, and particularly the retail sector. Currently, the global economy is resuming to a state of growth, with majority of economies recovering and stabilizing well. However, the Euro-zone Sovereign Debt Crisis has provided cause for uncertainty, affecting consumer confidence levels at a global scale. Recent figures have inspired investor confidence, with yields on government bonds returning to pre GFC levels suggesting the crisis may be ending. However, such enthusiasm may be premature, as the harsh austerity programs enacted to regain such results have escalated already high unemployment rates and deep recessions across Southern Europe.

Australia however, despite the global economic climate has enjoyed a relatively strong economic stance, historically evident in its GDP Annual Growth Rate averaging 3.48% from 1960 to 2013 according to the Australian Bureau of Statistics. Myer Holdings Ltd has reaped the benefits of Australia's strong financial performance, recording a growth in sales of $2.5657 billion from 2006 to 2012. However, despite such success, the retail industry, which significantly contributes to GDP at approximately 4.1%, has endured both domestic and international challenges. 

Historical Performance
The pre-GFC retail industry was an environment characterized by significantly less volatility than what is prevalent today. Prior to the Global Financial Crisis, consumer spending patterns were driven by: 1) Thriving domestic spending; 2) Low household savings ratios (-2% in 2003); 3) Record low unemployment figures of 4% in 2008 and; 4) Rising interest rates growing to 7% in 2008 in order to burgeon inflation figures to 5% in September of 2007.Myer flourished during this period, posting an increase in profit of 40% for the period ranging from 2007 to 2008.In comparison, following the GFC, consumer spending plummeted and sparked a record increase in the household savings ratio to 10.1%, exceeding the 20 year average by more than double. Current patterns of spending are characterized by: 1)The introduction of the Carbon Tax; 2) Rising unemployment levels and; 3) Uncertainty surrounding the rising cost of living with particular respect to housing prices. These changes in the market have led to a decline in consumer confidence and a shift away from discretionary spending,which has seen a negative impact on the retail industry, with retail spending in Australia at historically low levels and saving levels continually growing as seen in Figure 3.

The subdued economic outlook post GFC is evident through Myer's slowed growth as well as a decline in retail sales of 3.8% between 2010 and 2011. Interest rate cuts down to 2.5% by the Reserve Bank of Australia (RBA) have been made in an attempt to aid consumer confidence, however spending remains stagnant today, with inflation sitting at 2.7%. Myer is particularly sensitive to discretional spending, with the retail industry accounting for 30% of average household consumption. The correlation between these two variables is evident in Figure 4.

GDP is expected to be slightly below trend over 2013 at approximately 1.5% (RBA), before returning to pace this year (2014). The outlook over the coming year remains passive, reflecting ongoing fiscal consolidation, a shift in the retail industry towards e-commerce, the approaching peak in mining investment and the high Australian dollar. Consequently, Myer will likely experience continued economic uncertainty; full year profit fell nearly 9% in 2013 and is further expected to slide in 2014. 

Exponentially increasing technological...

References: ABN Newswire, 2014, Myer Holdings Limited Company Summary, viewed 16 March 2014,
ALDERMAN, L., 2014
Gottliebsen, R. 2013, ‘New Myer Strategies Revolutionise Retailing’, The Australian, viewed 16 March 2014
Kitney, D
Labour Costs Too High, 2014, Business Spectator, viewed 16 March 2014,
MacGowan, Ian
Myer Holdings Limited, 2013. Annual Report 2013, s.l.:
Myer, 2013. Myer Group Annual Report, viewed 16th March 2012,
Myer, 2013
Online Retail Sales Index Special Report, 2014, National Australia Bank, viewed 17 March 2014,
Trading Economics, 2014
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