David Jones, Myer, Harvey Norman: What the RBA minutes mean for retailers


The Reserve Bank of Australia (RBA) keenly watches the retail sector to help it form its opinions on the state of the economy. In the recently released RBA minutes to June’s board meeting, the board stated:

“Household spending appeared to have picked up in early 2013, after having slowed late in 2012 and having been supported by higher asset prices. In the March quarter, growth of retail sales volumes was strong across most categories, amid a decline in retail prices. Liaison suggested that the pace of retail spending might have eased somewhat more recently, while measures of consumer confidence fell back to around average levels in May.”

On the whole the RBA’s statement paints a pretty benign picture of the retail sector and suggests a muted outlook for leading retailers such as David Jones (ASX: DJS), Myer (ASX: MYR) and Harvey Norman (ASX: HVN). However David Jones shares have fallen 19%, Myer’s shares are down 26% and Harvey Norman’s are down 11% in the past three months. In comparison the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has dropped just 4%, so perhaps the outlook for retail is already baked in to their share prices.

Foolish takeaway

The big question mark that hangs over the future actions of the RBA is how the AUD responds. If the RBA lowers interest rates which in turn encourages consumers to spend more, this will be a positive for retailers. If the AUD remains high, then retailers will continue to enjoy the benefits of strong purchasing power. On the flip side, the strong AUD also encourages online shopping of overseas retailers, which has led Myer CEO Bernie Brookes to suggest a weaker AUD would also be beneficial to his company.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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