Retail Forecasts February 2012 – Walking the tightropeDOWNLOAD
8 February 2012: Retailers are due for a break. The last two years have been lean ones for the retail sector with sales growth of just 1.7% over 2010 and 2011 in real terms (after accounting for inflation). That doesn’t even cover population growth over that time (of 3.0%), and is a long way short of expectations of ‘normal’ retail sales growth.
As a result the casualties are starting to mount with Borders, Angus & Robertson and Colorado in administration and Billabong closing stores. Fierce competition from overseas online retailers is taking a degree of the spoils. However, other key culprits are the slowdown in jobs growth, the trend move to a higher level of savings, and the trend towards services and non retail necessities (such as electricity) taking a greater slice of the consumer budget.
There is blue sky ahead, but the economy may need to walk a tightrope for retailers to get there. Risks to the outlook include:
Overall, Australian GDP growth over the next year is likely to be strong thanks to business investment, and retail growth will be particularly supported by real wage growth and a levelling out in the savings rate.
Interest rate cuts from the RBA remain in prospect (particularly if the European situation gets uglier). Post GFC they were effective in helping retail, but deep cuts will only come in a renewed economic crisis – not something to be welcomed.
By financial year, real (inflation-adjusted) retail sales growth in 2010-11 was just 0.7% (a two decade low). That may rise modestly to 1.2% growth in 2011-12, before an expected healthier growth rate of 2.6% in 2012-13 supported in part by lower interest rates.
On a State by State basis, retail sales growth over the past year is very much mirroring the broader economy. The resource-driven jurisdictions of Western Australia, Northern Territory and Queensland are doing better than the national average (though Queensland only marginally so), while everyone else is doing worse. The split may become more unbalanced before it gets better.