01 August 2018   

5 min read
While July retail sales flattened, long-term retail sales are encouraging on the back of better than expected May and June results.

Research from JLL shows that household consumption is growing above the long-term trend at 3.0% y-y.

And retail turnover data shows Australian retail sales rose 2.6% in July compared with the pcp following the buoyant spending in June, which lifted by 0.4 per cent over the month —matching May's gain and ahead of economists' expectations.

Citi’s Head of Research Craig Woolford believes there are a few clear trends emerging. He says “food is outperforming non-food, housing-related categories have experienced the most notable slowdown in July, and online retail continues to take share at a faster pace than usual. Supermarkets, cafés and takeaway food had the strongest growth in July 2018.”

Department store sales trends slowed to -1.3% in July 2018. The timing of the toy sale pulled forward sales into June for Big W and end of season discounts were tapering off in July.

Clothing spending was weaker at 2.4% growth for July 2018, after two very strong months in May and June. With the sector transitioning to the Spring/Summer season fashion, which typically launches in August each year.

Furniture delivered July 2018 sales growth of 0.8%, an improvement from June (-3.4%), but still below long-term trends, with the housing cycle continuing to weigh on spending in this category. Hardware improved to +2.7% growth in July 2018, broadly in-line with the 4Q18 run-rate (+2.9%). In June, supermarket sales and food retail growth remained strong at 4.0% and 3.5% respectively, which can be largely explained by a shift towards eating at home. Cafés, restaurants and takeaway grew by 1.6%. Favourable weather supported stronger department store sales growth in June, at 1.9%, which follows very strong May results of 4.5% sales growth, the strongest in more than 12 months.

In May, sales shifted towards food, liquor and clothing and away from housing-related categories such as furniture, electronics and hardware. Clothing sales grew to 7.8% in May, the strongest level in two years, supported by cooler weather and favourable winter fashion trends, after an unusually warm April. This is consistent with industry feedback that clothing and footwear sales growth have been stronger in May, June and July.

The slowdown in the housing cycle impacted June sales growth in hardware and furniture, with hardware slowing to -0.1%, down from 3.5% in May and furniture declining by -3.4%.

Elevated discounting helped to offset the slowing housing cycle in electronics, with a lower than trend growth of 2.5% in June. Overall, the boost from rising employment appears to be warding off any drag on spending from modest wage growth, rising petrol prices and falling house prices.

According to JLL, there are reasons to feel optimistic about the Australian economy, which grew by a better than expected 0.9% in the June quarter and expanded by a solid 3.4% on an annual basis, the highest growth rate since 2012. This growth was largely led by household consumption – discretionary and non-discretionary –, which grew 0.7% over the second quarter to be 3.0% higher over the year.

While there are signs of resilience among consumers, households 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.