Retail Forecasts, August 2012 - Shopping with a frownDOWNLOAD
3 September 2012: The retail environment has been a bleak one for a number of years. Across 2010 and 2011 Australian retailers failed to maintain their level of sales on a real per capita basis. A weak global economic environment, new-found consumer enthusiasm for paying down debt, and the challenges of fiercer competition via online channels have made retailing a tough business. Retail sales growth in Australia has been much weaker than income growth, with that gap not evident across comparable nations.
But without much fanfare the environment has changed so far in 2012. Indeed retail sales growth over the past six months has been outstanding, with the level of retail sales increasing by 2.8% over the first half of 2012 – much better than the annual rate of growth seen over the previous two years.
Most elements of retail have shared in this windfall. After a dismal 2011, food retailing is now showing very strong outcomes, while spending on cafes and restaurants has also strengthened.
However, the biggest gains over the six month period have come from those who had been doing the worst – department stores (5.5% real gain) and clothing retailers (6.1% real gain), a welcome reprieve after a very difficult period.
It is really only the household goods segment which has continued to struggle over the start of 2012, as housing activity has failed to yet find its spark and consumers remain wary of consumer durables purchases.
The strong retail result is not without foundation. Support factors have included a handy rate of real wages growth (steady wage outcomes combined with declining CPI growth), interest rate cuts since late 2011 and, from June, support from Federal Government hand outs.
However, it seems that while Australian consumers are out there shopping, they are not that happy about it.
Consumer sentiment remains well entrenched in pessimist territory. Consumers remain rightly concerned about risks to the Australian economy and feelings of job security are low. That means that today’s retail recovery remains a somewhat fragile one.
Trend sales growth may be achieved over the next year, largely as interest rates remain low. But with weak employment growth at best, and continued legitimate concerns over the economic outlook, it is difficult to see spending growth move beyond that.
The resource-laden states continue to perform the best in terms of retail growth over the past year. However, lower interest rates are now helping to even the playing field, with retail sales in New South Wales rocketing up in the June quarter. That said, retail sales in Victoria have stayed subdued, constrained by a contraction in housing activity and continued pressure on manufacturing.
Looking forward, investment spending will still be a key driver for the Australian economy in 2012-13, and that will continue to favour the north and west. Job opportunities and wage growth are likely to follow those leads, as key supports for retail.