Globetrotting: Australia

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The retail outlook appears good down under, but warning signs lurk for licensing.

At first glance, Australia appears to be a retailer's dream. The economy has grown for 15 consecutive years, and shows only some signs of slowing. Ian Macfarlane, governor of the Reserve Bank of Australia, the country's central bank, told a recent parliamentary committee that he predicted GDP growth during 2006 would be around 3.5 percent. Unemployment is at just 5 percent, a figure Macfarlane describes as "an historic low," and ANZ, one of Australia's leading banks, reported last October that "household disposable incomes grew strongly through 2004 and 2005, with average household disposable income rising by around 5 percent from 2004 to 2005 from A$68,158 (U.S. $50,500) in June 2004 to A$71,700 (U.S. $53,000) in June 2005."

However, for the retail and licensing businesses, warning signs are flashing down under. ANZ reported that between January 2005 and July 2005, "retail sales grew by just 3 percent, compared with an annual average of 7.5 percent between 2001 and 2004." The bank attributes these apparently contradictory statistics to a combination of a softening housing market and rapidly rising fuel prices. ANZ emphasizes that while the rate of growth in retail sales has fallen, it is still rising, but it also recognizes that "the underlying drivers of consumer sentiment relate to income levels, employment, wealth, and the cost of credit." In the last regard, the governor of the central bank has some bad news, telling the parliamentary committee, "it is more likely the next move in interest rates will be up rather than down."

In certain sectors, notably food, the news for licensing, specifically, also is bleak. James Fitzgerald, managing director of Foodco—which operates almost 300 sites through two retail concepts, Muffin Break and Jamaica Blue—notes, "With the exception of down-market retail food chains with a young or indiscriminate consumer base, quality food and beverage retailers in Australia rarely promote themselves in conjunction with licensed characters." The key trend, believes Fitzgerald, "is a focus on healthier foods and accurate disclosure of nutritional properties and benefits." He cites McDonald's as a prime example. The chain, says Fitzgerald, "has worked desperately to reinvent itself and to move away from its core products of burgers, fries, and carbonated beverages to a wider, healthier offering of salads and fruits."

Sumo Salads Managing Director Luke Baylis agrees that consumers seem to be gravitating toward healthier fast-food alternatives, but he believes there are other factors at play. Again citing McDonald's, Baylis points to "new, innovative, funkier designs and branding in both its stores and marketing campaigns."

Australian bank Westpac produces regular indices of expected family finances and general economic conditions, and, in September 2005, these indices fell by 14 percent and 21 percent, respectively, indicating that whatever the Australian economy is doing in reality, consumers have a bad feeling about the future. And when confidence in the economic future is shaken, retailers often are among the first to hear about it.

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