31 May 2018   

5 min read
Australian shoppers opened their wallets in February with retail sales growing 3.0% across the board – the biggest increase since November last year.

According to Citi’s Head of Research, Craig Woolford, the February rise was pleasing, reflecting a boost in consumer confidence. However, national retail spending is likely to remain a little below trend across the remainder of the current calendar year.

“We expect growth of 3.0% to 4.0%, which is a slight pick-up. On the spending side, wages growth is likely to remain modest, but with national house price growth having flattened, further reduction in the savings rate is unlikely,” he said.

“Food retailing is expected to experience an acceleration relative to non-food, driven by the outlook for price inflation, given non-food prices are subject to downward pressure due to a higher Australian dollar and continued price competition from online retailers.”

Supermarket sales grew 2.3% in February 2018, down from the 2.5% growth recorded in January. Liquor sales were strong at 5.6% growth, while takeaway food sales remain below supermarket, café and restaurant sales, delivering growth of 1.9%.

Department store sales increased by 0.6%, while clothing sales rebounded further in February, rising 6.7%, the strongest level in over 12 months.

In the electronics category, sales rose 2.5%, broadly stable compared to January. While discounting activity remains elevated, this modest growth could lead to profit margin pressure.

Slowing house prices didn’t impact furniture and hardware category sales, which grew by 2.4% and 4.6% year-on-year respectively, compared to weaker sales in January 2018.

JLL Research believes that wages growth could be past its trough and about to steadily increase, but persistently low inflation (1.9%) and declining retail turnover growth (2.1% in the 12 months to January 2018) are still key cyclical headwinds. Spending in department stores and on apparel and footwear remain drags on overall retail turnover.

Key challenges ahead include static residential house price growth and expected growth in online competition. While the initial impact of the much heralded arrival into the Australian market of Amazon has been relatively muted, longer term impacts may be more significant if the US giant rolls out a retail platform similar to what it has done in its home market and the UK.

More broadly, the Australian economy grew by a lower than expected 0.4% in the December 2017 quarter, after also growing at a lower than expected pace of 0.7% in the previous quarter. On an annual basis, the economy expanded by a steady 2.4% in 2017, which is below historical trend but on par with growth in 2016.

Household expenditure contributed most to GDP growth in the December quarter (0.6 percentage points), with strong consumption of discretionary spending on items such as hotels, cafes and restaurants, and recreation and culture.

By state and territory, sales surged in New South Wales and Victoria, lifting by 1.1% apiece. Sales in Northern Territory rose by the same margin, while South Australia, the ACT and Tasmania recorded gains of 0.7%, 0.5% and 0.3%.