While Australian retail sales have been moderate in recent months, there should be some bright spots in the months ahead with growing consumer sentiment.
The latest Westpac-Melbourne Institute survey shows the mood of shoppers is improving with consumer sentiment rising by 3.6% in October, the highest level since the same time last year.
The Australian Retailers Association (ARA) and Roy Morgan Research Annual Pre-Christmas Sales Predictions has tipped that consumers will spend $50 billion, or 2.8% more on Christmas this year compared to 2016. While that’s lower than the 4% to 5% growth retailers would love to see, the ARA is confident that retailers will see a “robust Christmas”.
Consumer confidence has been constrained in recent months by weak wages growth, high household debt, stagnating house prices and rising energy costs. With less money to spend, consumers have been tightening their belts but Australians love Christmas and this should bring about an increase in sales, particularly in the hospitality category.
According to Citi analysts, Australian retail sales grew by 1.1% in September 2017, the lowest level of retail sales growth since June 2013, with weaker sales in discretionary and household goods spending, but stronger sales in supermarket and liquor.
Supermarket sales rose by 3% continuing the strength from August figures, while liquor sales increased 4.5%, with lower price inflation the key driver of below average sales growth across the grocery categories.
Department stores bucked the weakness of August sales, with sales up 1%, ending the negative sales growth experienced for the category for most of the year. Clothing sales slowed, with growth of just 0.3% compared to last year. Women’s wear remains weak with men’s and children’s categories performing better.
Electronics sales growth also slowed to -1.8% in September, following four strong months of sales growth.
Hardware sales also tumbled by 4.9%, while furniture sales were solid at 2.4%, down a little from the previous four months.
Citi analyst Craig Woolford believes households facing increased pressure from soaring utility bills and rising healthcare and education expenses limited spending growth in September.
“The subdued employment market, slower house price rises and speculation that interest rates may rise left consumers feeling cautious about spending.”
Jones Lang Lasalle analysts report that moderate wage growth in line with inflation, and a slowdown in residential price growth in Sydney, Melbourne and Brisbane’s apartment markets put the brakes on retail turnover growth in September.
JLL analysts think there are some positive indicators for retail with net wealth back above 2007 levels (as a % of disposable household income), the household savings ratio continues to fall and support spending, population growth remains strong and wage growth now appears to have passed its trough. However, while this is good for overall spending, how much of this is captured by online retail going forward remains unknown.
Fashion retailers will be looking for improved summer fashion trends to drive sales growth, following a weak winter fashion season.
Citi expects spending growth of around 3.5% to 4.5% over the next year. It’s likely that food categories will outperform discretionary retail categories as consumers save their dollars.
To put it all in perspective, a summary of the 2016 census shows that while the average annual household income is $98,500 up 12% on 2011, rents have increased by 17.5%, and home ownership is down by 2.1%. Stockland trade areas are following the national trend, with shopper income levels generally up.