For many retailers, 2009 was a difficult year, with deep discounting and sluggish or patchy sales. Yet pharmacists performed better than most, enjoying better growth than just about everyone else, with the exception of takeaway food shops and liquor stores. Better still, conditions look set to improve in 2010, although the recovery could hold a few hidden surprises for the unwary.

The winners of 2009

During 2009, pharmacists saw their sales grow in value by 10.8%, according to the Australian Bureau of Statistics. That performance was even more impressive when you take into account the fact that prices for medications and cosmetics actually fell.

“You could say that chemists experienced the strongest spending growth, because the actual volume of sales rose almost 12 per cent in response to a 1.1 per cent drop in prices”, says Craig James, CommSec Chief Economist.

The outlook for 2010

James says that pharmacists have reason to be cautiously optimistic about their prospects for 2010, although consumer spending could remain restrained under the impact of rising interest rates.

“Consumers are optimistic, but that is not yet being translated in sharply higher spending levels”, he says. “Last year’s financial crisis is still uppermost in most minds, causing consumers to keep a tight leash on budgets. That could help to keep downward pressure on retail margins and prices,” says James.

Nonetheless, an improving employment market should continue to underpin retail spending and overall economic activity, bringing better trading conditions during the year.

“It’s now clear that the unemployment rate has peaked,” says James. “Not only is unemployment falling, but the data on job ads show that employers are actively hiring new workers.”
“Over time, that should see consumer spending begin to pick up once again.”

Managing the risks in the recovery

Unfortunately, even an economic recovery has its negatives. Among the most obvious are rising interest rates, as the Reserve Bank gradually returns rates to a level it regards as normal.

While the Reserve Bank paused in February after three successive rate rises, the likelihood is still that rates will move higher over the year.

“Interest rates are poised to move higher over 2010, but the Reserve Bank wants to make sure that the economy is continuing to lift as it expects”, says James.

“We expect the cash rate to lift to around 4.75% – 5% by the end of the year,” he says.

Getting ready for rate rises

Rising interest rates can squeeze your cash flow by driving up loan repayments at the same time as inflation is likely to be increasing other costs. The risk can be heightened if:

  • You’re borrowing to fund ongoing business growth, but you haven’t yet realised all of the benefits of that growth.
  • You’ve borrowed to buy assets, but rising interest rates mean that your repayments have outstripped the income those assets generate, so that they no longer pay for themselves.
  • Sales are sluggish, putting your cash flow under pressure.

A Commonwealth Bank Healthcare Relationship Executive can help you identify these and other risks to the ongoing profitability of your business, then help you create solutions. To find out more, call 13 1998, 24 hours a day, seven days a week.

Peter Schiller is the National Head of Commonwealth Bank Healthcare Banking, a specialist team of Relationship Executives dedicated to providing tailored financial solutions to Healthcare professionals around the country.

This is general information and does not take into account your individual needs, circumstances or objectives.  You should consider the appropriateness of this information in relation to your own situation before acting on it. Commonwealth Bank of Australia ABN 48 123 123 124.