Are Australians still spending? Wesfarmers says yes

Wesfarmers' quest for growth
Wesfarmers' quest for growth   

Australia's transition away from resources-led growth has taken a toll on the country's households and economy, but the chief of Wesfarmers believes that confidence down under is holding up.

"[Consumer confidence] is pretty good at the moment... consumers have fuel price [and] interest rates decreases, and housing prices have moved up, particularly in Sydney and Melbourne," Richard Goyder, CEO of one of the country's largest retailers, told CNBC's "Managing Asia."

The widely-watched consumer sentiment index published by Westpac Banking and Melbourne Institute has been in negative territory for 11 of the past 12 months, highlighting consumer pessimism as Australia struggles to rebalance away from a focus on mining.

Meanwhile, data this month showed the economy expanded 2.5 percent for all of 2014, slowing from 2.8 percent in 2013. In February, the unemployment rate ticked down slightly to 6.3 percent but remained near a 12-year high.

But Goyder isn't worried: "The Australian economy is in a pretty sound position."

"If people are worrying about unemployment, then confidence can deteriorate quickly [but...] I think the economy is pretty resilient," the 54-year-old said. "With the falling currency, and as [states like] New South Wales move along a bit, I don't think that it is a big risk."

Richard Goyder, chief executive officer and managing director of Wesfarmers.
Brendon Thorne | Bloomberg | Getty Images
Richard Goyder, chief executive officer and managing director of Wesfarmers.

Business confidence

Goyder's positive outlook underpins his confidence in Coles – the supermarket chain that Perth-based Wesfarmers acquired for nearly A$20 billion (approximately $15.4 billion) in 2007 marking one of Australia's largest corporate buyouts. Sales at the supermarket giant were up 2.8 percent in the first-half of fiscal 2015, while earnings rose 7.1 percent.

When asked whether Coles could overtake arch-rival WoolWorths to become the top supermarket brand in the country of 24 million, Goyder said: "We want to be as good as we can in any of our businesses."

"This notion that Australia has a supermarket duopoly is just nonsense because we got strong players like Coles and Woolworths, as well as Aldi, Costco and Metcash, so it's a very competitive market [which] is good because it makes you innovate," he said.

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Not cold on coal

Goyder, who has been at the helm of Wesfarmers for the past decade, has not given up on the company's struggling coal business, noting that the industry still has "great potential."

"I understand the [environmental] issues, so we need to make sure the uses of coal are made more efficient with technology. [But] there's still a future for coal," Goyder said.

The lack of an alternative to coal, which Australia uses for nearly 75 percent of its power needs as well as steel manufacturing, makes it indispensable, he said.

The double whammy of a supply glut and a China-led demand slowdown have depressed coal prices by over 50 percent since 2011, in turn hurting corporate profits of miners like Wesfarmers. Australian thermal coal prices, which are the benchmark for Asia, nosedived to $65 a tonne last month, from their peak of nearly $142 in early-2011. But, Goyder believes that a rebound may be in sight.

"There's now a supply response to the lower prices and that should translate reasonably quickly to an improvement in prices by… this year," he said. "But [if it doesn't] we're profitable at current low prices and we'll be able to sustain these low prices for a longer time than most [producers]."

— Reporting by Christine Tan | Written by See Kit Tang