Wesfarmers retail giants Bunnings, Kmart and Officeworks lose steam as households batten down hatches

The household spending crunch exacerbated by four rounds of interest rate rises this year — and the real risk of a fifth next week — is taking a toll on Wesfarmers’ biggest earner.

Sales at the WA-headquartered retail behemoth’s Bunnings stores have slipped since the second half of the previous financial year as higher mortgage repayments imposed by the Reserve Bank eat further into disposable incomes.

Managing director Rob Scott will tell investors at the conglomerate’s annual general meeting in Perth on Thursday afternoon that, despite a stronger start to the first quarter of the new financial year, seasonal categories and the commercial segment had disappointed in recent weeks and weighed on overall sales performance.

Sales were also flat across its Kmart and Officeworks division, with a strong operating performance in chemicals business WesCEF offsetting weaker retail demand.

“At our full year results in August, we noted that uncertainty regarding the outlook for inflation, house prices, interest rates and tax settings were weighing on consumer sentiment,” he will say in his address.

“Since then, the Reserve Bank has increased the cash rate for the fourth time this year, to its highest level since 2011.

“Elevated inflation and higher interest rates continue to impact demand in parts of the Australian economy and are placing pressure on household and business budgets.”

The grim outlook came the same day fellow retail giant JB Hi-Fi revealed a slip in sales growth for the first quarter, pinning the blame on wary shoppers who were waiting for promotions to upgrade electronics and appliances.

But Mr Scott will say that Wesfarmers’ retail divisions is well positioned to weather the downturn as the company approaches the important Black Friday and Christmas trading periods.

He will say sales at discount department store chain Kmart are broadly in line with the second half of the past financial year, supported by its popular Anko product range.

In its increasingly important health division, the Priceline Pharmacy business is delivering strong network sales growth, and the relaunch of the Sister Club loyalty program as Pulse Rewards in August had been well received.

Outgoing chair Michael Chaney will say that Australia’s economy “is facing headwinds”, fuelled by rising fuel costs as a result of the US and Israel’s now eight-month war with Iran and runaway inflation that remains well outside the RBA’s preferred 2 to 3 per cent target band.

Mr Chaney will say low growth, weak productivity, “dismal” confidence and limited ambition or capacity for reform remain handbrakes on economic prosperity, and take a swipe and the lack of government action.

”Taken together, this economic and political environment has a significant impact on companies and their capacity to find and make investments where the numbers add up — to our long-term national detriment,” he will say.

“Company and personal income tax rates are still too high, and given the state of the Budget, lowering them requires governments to stand back and restructure Federal and State taxes together. Governments have not found ways to work together, to take up that task.

“If confidence stays low, productivity stays weak, we fail to effect real reform and bow to populist pressures, investment will stall and go elsewhere.

“Wages growth will slow and governments will have less to spend on the services Australians value. In the end, that will hurt us all.”