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Retailers say spending is back in fashion -

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Retailers say spending is back in fashion

Di Bain reported this story on Tuesday, June 30, 2009 12:34:00

PETER CAVE: The upmarket retailer David Jones has dramatically revised its profit forecasts,
upwards. It says shoppers have regained their confidence and are starting to spend again.

It's not the only one witnessing an upswing - Harvey Norman says its June clearance sales have been
very strong.

Both companies say the Government's stimulus measures are driving the spending spree.

But a key forum for the world's central banks, the Bank for International Settlements, warns that
such stimulus packages are likely to cause big economic headaches further down the track.

Di Bain reports.

DI BAIN: As a diversified retailer, David Jones believes it's the first in and the first out of a
downturn.

CEO Mark McInnes says a dramatic improvement in sales will see profits rise by up to 30 per cent
for the second half of the year.

That's well up on the company's previous estimate; at the start of the year it thought profits
would only be up 5 per cent.

MARK MCINNES: We still have plenty of trading to go but in our view the current results demonstrate
the resilience of our customer and brand strategy, our leverage to sales from good cost and gross
margin control. And as we've said for some time, department stores are first in and first out of
all downturns.

DI BAIN: Mr McInnes says the Government's stimulus packages have been important.

MARK MCINNES: The confidence that's come from the stimulus package and the stock market
stabilisation is good for all retailers. I think a 20 to 30 per cent profit growth off the back of
that comes from our ability to have good cost and growth margin control in this environment.

DI BAIN: Furniture and electrical goods retailer Harvey Norman has been feeling a surge in spending
too. Jerry Harvey says the company's profits have been savaged because of strong discounting, but
he's surprised at how much confidence there is to spend.

JERRY HARVEY: Yes, we've got some amazing figures out in June. We've got LCD and plasma TVs are up
20 per cent on last year. Now maybe that's because of the stimulus package, maybe it's pent up
demand. And we've got coffee machines are up 60 per cent on last year.

DI BAIN: Are people spending money or are they getting interest free financing?

JERRY HARVEY: Well they're doing both, I mean lounge sales - furniture and bedding's supposed to be
slow - but our lounge sales are up 13 per cent in June. Our bedding sales are up 18 per cent.

DI BAIN: He too says the Government's stimulus packages are generating confidence but the
international organisation of central banks says that might not be a good thing. It's warning the
financial stimulus measures implemented by governments, including Australia, will restrict future
growth. In its annual report the Bank for International Settlements says there's significant risk
that Government cash handouts will only offer a temporary fix. It's urging Government's to reduce
spending and raise taxes as soon as stable growth returns. Jerry Harvey says there's strong signs
that time has arrived.

JERRY HARVEY: Yes, because you know, those sort of sales are quite unusual even in really good
times. If you've got people that are regaining some confidence and they've been putting things off,
that also plays a big part. So you know, we were talking six or nine months ago about Armageddon,
the world's coming to an end, and now we're starting to say, "Oh, we're on the way back".

So if I was putting off buying a TV, a fridge or a lounge or something like that I might think I've
put this off now for six months or a year I'll go out and buy it now and that may have nothing to
do with the stimulus package it's purely confidence.

PETER CAVE: Retailer Jerry Harvey ending that report from Di Bain.