Analysis: What the bushfires crisis means for the advertising industry

By Chris Pash | 3 February 2020
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The ad spend canary, with a sore head from wishing too hard for a pickup in the economy, has been blinded by smoke.

A series of global issues and local disasters, including the bushfires crisis, is dragging multi-billion dollar lumps of cash from key sectors of Australia’s economy, squeezing hopes of a pickup in the advertising industry in 2020.

An immediate impact of the bushfires is the further dampening of consumer confidence flowing through to weak retail spending. Even before the bushfires, money wasn’t circulating in the economy as it should. It’s all about confidence.

And there’s more bad news to come with a downside to transport (airlines) and to the tourism dollar. More blows to the economy in a long line of concussion-causing events. 

Tourism Australia is working on a campaign to help put domestic holiday makers in hotel beds, ­at restaurant tables and in campgrounds in regional areas. But the international dollar will take time to return. 

Tim Riches, of brand consultancy Principals, says the impact of the bushfires and the country’s response to climate change will be felt on brand Australia for years to come. 

“Australia’s bushfire disaster, its impact on our environment and our government’s stance on climate has put us in the spotlight for all the wrong reasons,” he says. 

The advertising industry, seeing month after month of falls in ad spend as measured by the SMI (Standard Media Index), has had a rough run over the last year.

The final December SMI will be known this month but it is certain to show another negative month for media agency bookings, the 16th month in a row.

The state of Australian business is the issue for clients. Craig James, chief economist at CommSec, says the federal election in 2019 robbed momentum from the economy.

“As did the global economic slowdown caused by the US-China trade stoush,” he says. “Then there was Brexit, recession fears in the US and the domestic east coast drought.”

And now Australia has bushfires, flooding and hailstorms (in the ACT, NSW and Melbourne in January).

The Wuhan virus in China will also drag significant cash from the economy, keeping big-spending Chinese tourists from travelling for at least two months. That alone adds up to at least $1 billion lost.

Shane Oliver, head of investment strategy and chief economist at AMP Capital, says a bigger impact on economic activity is likely to come from a hit to consumer spending as the constant news of the fires and smoke haze weighs on confidence.

“Australians were already very hesitant about the economic outlook after the slowdown in growth seen last year and continuing weak wages growth and high underemployment,” he wrote in January

The bushfires -- with a tragic loss of life of more than 30 people -- are having an immediate effect on retailers who look to late November and December and into January for a boost to sales.

Fashion retailer Mosaic, the former Noni B Group: “Comparable sales through the second half of November and throughout December, a critical sales period for the group, were significantly impacted by the ongoing bushfire tragedy.”

Almost a third of Mosaic’s 1,386 stores are in regional areas where “consumer confidence has been particularly fragile”.

Super Retail Group, owner of Rebel Sport and Supercheap Auto says the bushfires and sustained drought also dragged at Christmas trading.

The company has BCF, the leisure goods chain, selling tents and sleeping bags. 50 BCF stores have been directly impacted by fire. Who goes camping during a bushfire?

Super Retail Group: “Whilst we expect the impact to be one-off, it is difficult to estimate how long it will take for sales to recover, specifically in the outdoor category.”

Analysts at investment bank UBS say clothing brands held by Solomon Lew’s Premier Investments have higher regional skew and could also be at risk.

A clearer picture will emerge when companies start reporting profit results this month.

“We think further reports of store disruptions and softer trading are likely from other retailers leading into and during reporting season,” say the analysts at UBS.

Damage across industry sectors is difficult to determine.

But “the impact on consumers, businesses and infrastructure assets will have implications for the economy and listed companies,” says UBS analyst Pieter Stoltz in a note to clients.

Retail, insurance, food and beverage, and transport are likely to feel the largest negative effects, he says. Resources, building materials and infrastructure likely mildly affected.

The Australian Tourism Export Council estimates a 10% to 20% (perhaps as much as $4.5 billion) cut in international tourism revenue in 2020.

Local tourism operators are already hoisting red flags.

Apollo Tourism & Leisure, which rents motorhomes and campervans: “Australian last-minute bookings over the peak summer holiday period have been impacted by the bushfires and will affect the H2 FY20 results. At this stage it is too difficult to forecast the impact of the bushfires and the Coronavirus on future bookings.”

And that brand Australia factor. The company says reporting of the Australian bushfires globally will also impact forward bookings.

Researchers at Wilsons wealth advisers say sensationalist media stories have created uncertainty for potential tourists.

“Anecdotal feedback suggests enquiries for the cancelation of upcoming trips has spiked and forward looking bookings are weak,” Wilsons says in a note to clients.

“While the Australian governments $76 million grant to Tourism Australia may change this, we note it is the peak window for European’s booking international travel which could have a longer lasting impact on the sector.”

More than 10 million hectares have burned so far during the bushfire crisis, about half of that in NSW, Australia’s biggest economy. More than 2,000 houses have been destroyed.

The Insurance Council of Australia estimates claims at $1.34 billion but this number will rise. Insurers, such as IAG, Suncorp and QBE, will carry liability but exposure to claims will be capped by re-insurance.

UBS economists estimate the bushfires could drag GDP by up to 0.25% per quarter in the last quarter of 2019 and the first quarter of 2020,

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