22 November 2018   

5 min read
Australian retail sales rose by 2.8% in September, rounding off what was a weaker quarter for consumer spending in stores and signalling a welcome lift in consumer confidence.

Although sales figures are a little short on expectations, this upbeat consumer confidence should translate to a boost in discretionary sales in the coming months.

Citi Research’s Lisa Huynh believes there are a few clear trends emerging. She says “food is outperforming non-food, housing-related categories have experienced the most notable slowdown, and online retail continues to take share at a faster pace than usual.”

Spending on food and eating out continued, with a 0.5% rise in cafes, restaurants and takeaways. Supermarkets continued to deliver strong growth, with 4.1% YoY in September 2018 following on from 4.5% in August. Deflation pressure eased following fresh food price increases. Liquor growth slowed to 1.1% in September 2018, consistent with feedback from retailers that sparkling wine sales have moderated with unseasonal weather.

Department store sales continue to fluctuate, with sales declining by 0.6% in September from strong August results (4.3%).

Clothing spending slowed to 2.2% from 4.3% in August, as the sector transitioned to the spring/summer season fashion. Retailers reported a subdued start to sales across summer lines because of an unseasonably wet September. While sales were down on the precious three months, clothing remains strong and, in the lead, up to summer, it’s expected that sales of accessories and apparel will improve.

Furniture sales slowed to (0.0%) with the housing cycle continuing to weigh on spending in this category. Hardware sales remained consistent , with 3.0% growth broadly in-line with the 4Q18 run-rate (+2.9%). Electrical goods were up 3.34%.

With consumer spending on the rise as we head into the silly season, Roy Morgan’s annual Christmas retail sales conducted with the Australian Retailers Association points to strong sales through to Christmas, forecasting Australian consumers to spend 2.9% more this Christmas than in 2017.

Deloitte’s Retailers’ Christmas Survey also reports that retailers expect to increase their sales and profit margins from last year.

According to the report, around 80% of retailers expect to see higher sales this Christmas, compared to last year, with 41% predicting growth of 5% or more. They are slightly less bullish, but still confident, when it comes to margins, with 56% expecting some form of increase this year.

To achieve these outcomes, retailers are pinning their Christmas hopes on two key areas: a strong product mix; and an uptick in online sales through investments made in omni-channel business models.

While there are signs of resilience among consumers, household budgets remain under pressure with high debt levels, rising living costs, falling dwelling values and subdued wages growth, which is likely to see retail spending remain slightly below trend in the longer term.