Myer's sales rise despite pressure on sector from falling dollar, unseasonal weather, internet and competition.

Shutting down stores and ditching in-house brands might not sound like a recipe for success for a retailer, but it's paying off for Myer.

Investors last week got the first indication that Myer's A$600 million ($644.4 million) turnaround strategy might be working.

The department store owner reported a 2.1 per cent increase in third quarter sales.

Impressively, after declining for the past two decades, sales per square metre of shop space rose 5.1 per cent. This is an important measure of how hard a retailer is working its assets.


Retailing in Australia is tough at the best of times. The internet is putting pressures on stores as shoppers realise they can buy many goods cheaper online, intense competition is squeezing margins and the falling Australian dollar is pushing up the price of imported goods.

Adding to that pressure over the past few months is Australia's unseasonably warm autumn. Jumpers, heaters and blankets bought in by retailers as the weather cools have been left on the shelves this year. Such an event can be cruel to a shop's sales so Myer has done well to overcome this.

Myer's turnaround strategy involved shutting down poorly performing stores and refurbishing others to focus on fewer high-margin branches. It is also selling more name brands such as Seed, Mimco and Nine West, at the expense of its own private label brands.

The shares rose close to 8 per cent after Myer released the sales figures and finished the week at A$1.23.

Malcolm Turnbull's eight-week election campaign could damage consumer confidence and stop shoppers reaching for their credit cards.

That a 2.1 per cent rise in quarterly sales could prompt such optimism is a sign of how badly Myer has performed since it was floated on the share market by private equity firm Texas Pacific Group in 2009. Unfortunate investors bought in at A$4.10 a share, so they've got a long way to go before they break even.

There are still clouds on the horizon. Malcolm Turnbull's eight-week election campaign could damage consumer confidence and stop shoppers reaching for their credit cards. And some analysts are concerned Myer's profit margins could come under pressure, as it earns less for selling name brands and the lower Aussie dollar makes it more expensive for the company to buy the goods it imports.

Out of ammunition

The Reserve Bank of Australia looks determined to do away with what little stimulatory ammunition it has left as it fights a battle against inflation.

The inflation numbers the Reserve Bank is targeting are not too high, as they have been for the past couple of decades. They're too low and an increasing number of people are questioning whether or not it should be fighting this battle.


Prices actually fell in the last quarter and inflation is now expected to stay comfortably below the RBA's 2 to 3 per cent target for the next couple of years.

A little bit of inflation is good for the economy because it makes consumers expect prices will rise and spend their money now before things get more expensive. With no inflation or with falling prices, many consumers might be tempted to hold on to their money instead. That is a scenario policymakers want to avoid.

But there are questions about how effective cutting interest rates to stimulate inflation and the economy can be. It hasn't been a great success in parts of Europe and Japan.

When the global financial crisis made itself felt nearly a decade ago, Australia was in a strong position.

Its healthy budget surplus allowed the Government to pump money into roads, school halls and home insulation projects. In truth it didn't really matter what the money was being spent on - the important thing was that it created jobs and kept the economy ticking over.

Interest rates were sitting at 7.25 per cent when the GFC hit and the Reserve Bank of Australia slashed rates by 425 basis points to 3 per cent to stave off a recession while the rest of the world struggled.

But if another shock were to hit and the economy needed a boost we won't have the luxury of dipping into government coffers because the budget is in deficit and interest rates are at an historic low of 1.75 per cent.

There is a risk if the RBA cuts further, the nation will be left without any ammunition to stimulate the economy if and when it's really needed.