Australia's mining boom masks retail sector pain

The elegant streets of Sydney's Paddington are where the city's rich and fashionable gather to shop, dine and socialise. But despite Australia's unprecedented economic boom, business has never been so bad. "This is the worst season I've had," says 15-year retail veteran Helen Haines, adding that Australians' shopping habits were out of step with the national economic surge, with impulse shoppers increasingly rare. Haines's boutique, the classy but eerily quiet women's store Luby's Angel, has its regulars but the days of passersby stopping in on their way to get groceries and leaving with armfuls of clothes are over. "It's a lot harder because people are being careful," store manager Alex Couzens told AFP, saying most boutiques in the area were suffering as shoppers face rising prices for essentials such as electricity and housing. "People are really honest about it. They are becoming a lot more comfortable in saying 'We're struggling'." Australia's economy was dubbed the "Wonder from Down Under" when it excelled even as the global economic crisis hobbled most countries, with exports of iron ore and other minerals producing enviable growth and trade figures. But experts now talk of a two-speed economy, with retail being left behind the resources sector. While mining companies are making record profits, shops are closing their doors as absent consumers mind their wallets. Big mineral demand from Asia meant that although this summer's floods and cyclones devastated mines and crops, Canberra expects growth of 2.25 percent for the year to June, with projects worth Aus$430 billion (US$460 billion) on the horizon, mostly in mining. But the outlook is radically different for those without a connection to the resources sector -- retail sales and consumer sentiment are plunging as Australians nervously eye debt crises in Europe and the United States. Overshadowing all is a fear about the health of the global economy after confidence was shattered during the global downturn, possibly resulting in altered consumer behaviour, said ANZ economist Riki Polygenis. "While lots of households took quite a bit of a hit to wealth during the global financial crisis in terms of equity falling, even if some of that wealth has returned, it may have led to a change in behaviour," she said. Consumer sentiment declined in July at a rate normally seen during times of economic shock and Australians have seen a swath of high-profile stores close recently, including bookshops, restaurants and fashion labels. The demand for iron ore, coal and gas, which has supported Australia's export trade, has contributed to seven interest rate hikes since October 2009, leaving most Australians with higher mortgages and rents and less disposable income. Such is the consumer caution, major bank Westpac predicts that the central Reserve Bank of Australia will move to cut interest rates by the end of 2011. The Labor government's announcement that it will impose a carbon tax from July 1, 2012, resulting in a predicted 0.7 percent increase in prices in its first year, has also rattled consumers, according to economists. "We have got a two-speed economy," Australian Retailers Association chief Russell Zimmerman said bluntly. "There's a lot of retailers out there who are doing it tough," he added, noting that many were either restructuring to cut costs or closing down entirely. And despite very little growth in retail trade, Zimmerman said: "We've got landlords that consistently put their rent up." A recent high-profile casualty of a rental dispute was Sydney's famous Jordons seafood restaurant at the tourist spot Darling Harbour, which closed this month after 23 years. At the other end of town, another well-known eatery, Betty's Soup Kitchen in Darlinghurst, is also battling against higher rents that manager Ron Ehrlich said could force his affordable and homestyle restaurant out of business. "Good times, bad times we've always been a place for budgeting. We would like to exist like that, I don't want to charge Aus$15 (US$16.05) for a bowl of soup," he explained. Paddington shoemaker Levon Karapetyan believes it is a crisis situation for retail, particularly as people become more comfortable buying online. "It used to be very good. It's just not the same anymore," he said. "It's true -- retail is down just because Australians are unsure."