Clive Peeters MD fears strong links to housing market

Prior to the the announcement yesterday that interest rates will remain steady, the head of Clive Peeters admitted that his business would not react well should rates rise, as the retailer is closely linked to the housing market.

In an interview published in Fairfax newspapers, Clive Peeters managing director, Greg Smith, said his business sells a high proportion of whitegoods and cooking products, and therefore as the housing market suffers then so will its sales.

“Our industry’s closely related to the housing market, particularly a business like ours because we have a big component of whitegoods and cooking products,” he said in the article.

“That closely tracks the housing market. So if the housing market slows as a result of interest rate rises, then we slow in direct proportion.”

Households struggling to meet mortgage repayments would have been in further trouble had interest rates risen, with Australians paying a higher proportion of their wages in repayments than ever in our history, according to Labor Treasury spokesman, Wayne Swan.

Luckily, there are growing expectations that interest rates will remain steady throughout 2007, and may even come down, according to The Australian Financial Review.

Following the Reserve Bank’s announcement yesterday that rates would remain at 6.25 per cent for another month, Reuters forecasted that inflation will settle back to around 2.5 per cent in the second half of the fiscal year.

“The good news is that the consumer price index seems to have ticked down a bit and that is good news for stability in interest rates,” the Treasurer said.

The Reserve Bank is due to release an outline of its assessment in its quarterly economic review next week, including the risk of wage inflation, with employers finding it difficult to fill job vacancies, and the unrelenting pressure on prices from high raw-material costs.

Elsewhere in The Age’s article, Smith said that even though a recent drop in petrol prices had provided some additional consumer confidence, sales “had slowed noticeably in all states” except for the Western Australian market, which has experienced strong growth due to a buoyant mining industry.

Recent statistics on the Western Australian economy show that the value of its exports is more than those for New South Wales and Victoria combined. Boasting an unemployment rate of 3.1 per cent, Western Australia has increased the value of its commodities output over the last 12 months by 29 per cent to $43.2 billion led by oil and gas which were up by 23 per cent and iron ore which was up by 56 per cent.

“Only high-tech products such as plasma TVs and other entertainment goods had been spared the malaise gripping the industry,” Smith was quoted as saying in the article.

“Interest rate rises stop the industry far more quickly than almost anything else,” he said, although he also added that a small rise in interest rates could be offset by sliding fuel prices.

In September last year, Clive Peeters reported that it will conduct a $15 million expansion in Western Australia after strong half year results for the Rick Hart business in that state.

Last year’s results reinforced Smith’s comment regarding the disparity between the eastern states and the Western Australian market with Rick Hart stores growing by 11.7 per cent, while the group’s stores on the east coast of Australia grew by just 0.1 per cent.

Clive Peeters is yet to announce sales results for the first half of the financial year to 31 December 2006.

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