Weather and cash registers running hot

It was not a merry Christmas, but it has been a happy New Year - for some retailers at least.

Although some major chains were forced to issue profit warnings after a poor start to December, Bank of New Zealand has released figures based on spending by its card holders that show after a weaker than normal December, stores have had a better than normal January.

Mitre 10 chief executive Craig Wilson said the hardware co-operative's experience backed up the bank's finding. His chain has 121 member-owned stores throughout the country under the Mitre 10, Hammer Hardware and Palmers brands.

"December was softer than we would have liked but January sales have been strong," he said. Wilson said outdoor products started to sell with the warmer weather, but he did not believe the pattern of spending had varied much year on year.

"Typically what we're finding is people are spending later."

The BNZ figures pre-empt official retail sales statistics, which analysts believe may not paint such a poor picture of December. A Bloomberg survey suggests if analysts' forecasts are right, retail sales probably rose 0.2 per cent in December from November, when adjusted to strip out seasonal effects.

BNZ chief economist Tony Alexander said his estimate, based on the 14 per cent of retail spending captured by the bank's card data, was that Statistics New Zealand would report seasonally adjusted retail spending was down between 0.5 per cent to 1 per cent in December, excluding car sales.

But he expected the Government agency would report adjusted retail spending had risen between 1 per cent to 1.5 per cent in January, confounding a belief that retail sales had already begun to cool.

"The key finding is that just as so many other pieces of data recently have surprised on the strong side, so too does it look like retail spending was reasonably firm in January after a pre-Christmas pause," Alexander said.

Farmers chief operating officer Rod McDermott said his company had traded well in the summer months.

"In fact, the month we got our strongest sales increase on last year was January," he said.

Life Pharmacies chief executive Tim Roper's co-operative of 18 pharmacies is set to become part-owned by public company Beauty Direct and Online if shareholders of that company vote in favour of the deal today.

He said Life Pharmacies' total sales were up 6 per cent in January, from the same month last year, after a 5 per cent rise in December. But prescriptions had driven growth, with sales of other items growing at a slower rate in that month.

Alexander said there had been "wildly varying" comments from retailers about the strength of spending over December to January.

"Some retailers have said conditions were weak, some admitted this weakness was due to some branding issues, some have blamed the poor weather into mid-January." Feedback from retailers did point to a squeeze on profit margins, because January was also a period of deep discounting by many retailers, which appeared to have lasted longer than normal. Along with better weather, that may have contributed to the rebound.

Alexander predicted the rate of growth in retail sales would now begin to slow, from 7 per cent in 2004 to about 3 per cent for the current year - with unexpected strength in the housing market the factor that could upset those forecasts.

"The issue for retailers is how quickly they can adjust their revenue expectations from a super environment to something more normal."

Alexander said BNZ data continued to suggest weaker growth in retail spending in Auckland than for the country as a whole.

He found spending in the region was up just 4.8 per cent in the three months to January, from the same period a year earlier, compared with a much stronger 6.5 per cent rise nationwide.