The halcyon days for Australian retailers are over as wage growth slows, people eat into their savings to pay for soaring electricity, education and healthcare bills, and international retailers set up shop.
Daniel Blake, strategist at investment bank Morgan Stanley, has told clients that retailers’ best trading conditions seem to be behind them.
Tourists boost retail sales
Growth in tourist numbers have provided a much-needed boost in the increasingly competitive retail industry. (Courtesy ABC News 24)
“Whilst there were some solid sets of sales and earnings from various retail formats over the [most recent] result season, we can’t help but feel that they may end up being seen as close to peak performance in terms of level of sales growth and also quantum of margin,” Mr Blake said.
Morgan Stanley has told clients that “household income fell 0.1 per cent in 2016, the weakest growth in 44 years outside of a short-lived 0.7 per cent drop during the global financial crisis”.
“In the absence of any income growth, Australians are increasingly digging into their savings to fund consumption, with the savings rate now down to 5.2 per cent versus the 10-year average of 6.7 per cent and the recent peak of 10.1 per cent in 2012.
“In conjunction with the near-record high in underemployment, Morgan Stanley’s view is the Australian consumer faces increasing headwinds to growth.
“Also, the strong apartment cycle which has so far provided a boost to home furnishings and the like looks to have peaked with … trend multi-dwelling approvals falling by 24 per cent from their peak in May 2016.”
Morgan Stanley notes that while it is “entirely reasonable for retailers to wax and wane through an economic cycle”, there is a “secular headwind looming for Australian retailers in the form of foreign competition”.
There is a “secular headwind looming for Australian retailers in the form of foreign competition”, according to Morgan Stanley. Photo: Gillianne Tedder
Aldi and Costco are challenging Coles and Woolworths in supermarkets. Online retail giant Amazon is expected to increase sales significantly from $1 billion a year when it expands here.
The consumer discretionary sector performed third-worst in the three months to late March.
Aldi and Costco are challenging Coles and Woolworths in supermarkets. Photo: Joe Armao
Industry body the Retail Council said that since 2010 there had been a “step down in ‘average’ retail sales growth”: “For the first 10 years of the century, retail sales averaged annual growth of 6.1 per cent but since the start of 2010 this has slowed to 3.5 per cent.”
Keeping interest rates on hold at 1.5 per cent this month, the Reserve Bank said “indicators of household consumption had been a little weaker than expected in early 2017”: “The value of retail sales had fallen slightly in February, following average growth in January, and households’ perceptions of their personal finances had declined to below-average levels.
Online retail giant Amazon is expected to increase sales significantly when it expands here, making for tough times at the till. Photo: Rocco Fazzari
“Retail price inflation had remained subdued, partly because competition had remained strong across the retail sector.
“Members noted that utilities prices were expected to put some upward pressure on retail costs, but that retail rents had been flat – or rising very marginally at most – across the major cities.”