KEY POINTS:
Alarm bells ringing at bellwether stock Briscoe Group may be a general warning for the economy.
Briscoe managing director Rob Duke today said other companies would be similarly hit after his retail chain reported a 10 per cent plunge in first quarter sales from the year ago figure.
He blamed the economy for his company's woes - rising interest rates, food and petrol prices, putting the squeeze on household spending.
"You watch other stocks go. We are just the first cab off the rank.
"I think everyone is going to get crunched big time."
Briscoe, which runs the Briscoe homeware chain and Rebel Sports, said its first half net profit could halve from $10.5 million a year ago.
Shares in Briscoe today fell 5 per cent, or 5 cents, to a 40-month low of $1.17. Shares in general discount retailer The Warehouse were down 5 cents to $5.71 while clothes retailer Hallenstein Glasson fell 6 cents to $3.54.
"Our customers have been absolutely smashed," Duke told NZPA.
Mortgage rates rising from 6-7 per cent to nearly 10 per cent and the rise in petrol to around $2 a litre was severely affecting discretionary spending.
His company was still trading profitably but margins had taken a significant hit.
"If Briscoe Group and a whole series of other retail enterprises start reporting, and they will, the sorts of numbers that we are reporting, somewhere someone in Government has to sit down and go `Holly Hell, so it's going to slow down this much', and they ought to prepare everyone for that or do something about it."
Duke said tax cuts in September and October would be insufficient to rectify the situation.
He said he had experienced belt tightenings before, but the question is "how tight is tight?"
Whether it was its fault or not, the Government would pay at the general election due in October or November, he said.
Mr Duke said when parents were being squeezed, they were not going to buy their child a new pair of football boots.
Same store sales for Rebel Sports plunged 15 per cent in the quarter against a 7 per cent fall in same store sales for the homeware chain.
There are other alarm bells ringing in the economy.
Debt collector and credit agency Veda Advantage reported debt defaults rose 40 per cent in the March quarter from a year ago.
Veda New Zealand director John Roberts said the number of unpaid bills was soaring as households and small and medium- sized enterprises (SMEs) struggled.
Household defaults were mainly to telcos and credit card companies but for the first time SMEs were featuring prominently, he added.
Telecom's chief financial officer Russ Houlden said customers were struggling and the company had been forced to disconnect more customers.
Telecom's bad debt jumped 46 per cent to $57m in the past year, as defaults increased.
Yesterday, a leading Auckland real estate company reported a halving of house sales in April from a year ago, although Barfoot & Thompson said it saw no evidence of forced sales.
The average April sale price was 2.2 per cent down on a year ago.
Goldman Sachs JBWere economist Shamubeel Eaqub described the figures as a "housing implosion" of near recession levels.
Because households had accumulated significant debt backed by house prices, when those prices fell it had a greater effect on both the economy and households, he told Radio New Zealand.
Goldman Sachs sees a scenario where the economy fell more sharply than predicted at the same time as the financial system faced heavy strains due to the global credit crunch.
He called on the Reserve Bank to cut interest rates now.
"At 8.25 per cent, monetary policy is leaning very hard against the economy and we think that is absolutely the wrong stance to have at this stage of the cycle."
Reserve Bank Governor Alan Bollard in a report on the banking system today announced special measures to ensure enough liquidity in case of further international financial market turbulence.
The system had so far withstood a "severe" test of global financial markets.
While he refused to answer questions about monetary policy, he acknowledged increasing evidence of mounting credit defaults.
He noted finance companies and others were facing liquidity pressures although such "disruptions" would not have widespread impact on the financial system and economic effects were likely to be relatively contained.
Bollard said the slowdown would "assist in unwinding some significant economic imbalances that have built up over recent years and have left the economy more exposed to economic shocks"
He acknowledged a risk of a sharper slowdown than predicted, particularly if the global economy dives.
- NZPA
