After a tough trading year, the boost to retail sales in late 2017 is a promising sign for the year ahead. While spending may have started slowly in 2018, there should be more sustained growth as the year progresses.
Craig Woolford, Head of Research, Citi research says “2018 should result in slightly stronger growth of between 3.5%-4.5% driven by tax cuts and better wage rate growth. The downside risks are rising living costs and a reduced injection from lower savings rates.”
According to Citi, sales grew 1.6% in December 2017, with retail sales finishing the year at 2.4% growth. Food sales grew by 2.8% and non-good grew by 0.5%, which was consistent with industry feedback that Christmas trading was mixed by category.
With 2.8% food sales growth and 0.5% non-food growth, which is consistent with industry feedback that overall Christmas trading was mixed by category.
The weaker sales follow a surge in retail sales in November, driven by the iPhone X and Black Friday sales. Large retailers significantly outperformed small retailers in December, which may reflect better systems to grow online and the financial capacity to compete on price.
Supermarket sales growth moderated to 2.2% YoY in the month of December and 2.5% for the December quarter. Fresh food deflation remained a headwind in December. Takeaway food remains soft as it cycles strong growth in 2016, delivering +0.4% YoY sales growth, well below cafes and restaurants at 5.2% YoY sales growth.
Department store sales declined by 1% YoY in December, following four consecutive months of growth. The growth of +0.6% in the December quarter reflects a divergence of retailers with good sales growth (Kmart and BIG W) and those with sales declines (Target and Myer).
Clothing sales declined by 2.1% in December 2017 as it cycled a very strong December 2016 (+8.6% growth), deflation picked up and the fashion cycle remains dull. Black Friday sales also brought forward spending to November.
Electronics sales growth moderated to 4.0% in December, down from 10% in November but sales are still elevated, supported by discounting and delayed iPhone X sales after its November launch.
Housing related categories were mixed, with hardware sales boosted by favourable weather growing by 2.6% while furniture sales fell by 2.1%, in what is typically a quiet month for furniture retailers.
JLL Research suggest that Amazon’s entry into the Australian market has opened a new front of competition and is likely to prompt retailers to invest more in IT, logistics and store refurbishments. While wage growth rebounded by 3%, low inflation (1.8%) and sluggish retail turnover remain short-term headwinds for the retail sector. Moderating residential price growth in Sydney, Melbourne and Brisbane apartment markets may also have a negative impact with the potential to curb wealth effect consumption.