DESPITE many retailers still struggling to recover, spending in the September quarter pushed retail sales well above pre-COVID levels as more consumers spend locally whilst international travel restrictions remain.
According to the latest quarterly from Deloitte Access Economics, retail spending has all but recovered in many areas, as volumes increased by 6.5% over the September quarter, after a significant drop in June as the pandemic ramped up.
“Retail spending has been an area of strength for the Australian economy through COVID-19. With social restrictions easing, and a measure of pent up demand unleashed, retailers experienced a surge in spending volumes over the September quarter,” said David Rumbens, Deloitte Access Economics partner.
This has continued into the December quarter, as retails sales volumes are forecasted to have increased by 2.6% for the 2020 calendar year.
“Retailers are capturing a greater share of consumer wallet. While overall household spending is still down compared to pre-COVID levels, retail sales have surged ahead. And this increase in market share is likely to linger for some time as restrictions, and consumer reluctance, for travel remain a barrier to spending on transport and accommodation.”
However, clothing, café and department store segments are still falling behind, with risks heightening in the new year as headwinds start to weigh on spending 2021. While 39% of retailers expect a growth of over 5% in Christmas sales, up from 21% in 2019, 24% of retailers expect a fall in sales of over 5%.
Insolvencies in the sector have dropped in 2020, with about 300 retailers entering into external administration in 2020 so far, compared to nearly 500 by October in 2019.
“This suggests that if 2020 were similar to last year, an additional 200 retailers (on top of the existing 300) would likely have entered external administration by now, and a further 150 would do so before the end of the year.”
“The Christmas period is critical in any year, but for businesses facing significant disruption to operating conditions, who relied on stimulus measures that are slowly fading and who haven’t made necessary structural adjustments, there is a risk that a poor sales performance could be the straw that breaks the camel’s back,” said Rumbens.
Victoria is also struggling more broadly across the sector, after two quarters of decline in retail spending volumes. Retail sales are still sitting 5.8% below October 2019 numbers, despite a rise of 5.1% in September.
Broader consumer spending was up in the September quarter by 7.9%, though still down 6.5% through the year. With household consumption over the quarter rebounding by 11.0%, but still down 3.1% through the year, in all states and territories but Victoria.
In Victoria household consumption continued to fall, by 1.2% in the September quarter and down by 16% throughout the year.
New South Wales on the other hand saw relief over the September quarter, with retail spending surging by 11.6%.
“The double-digit gains in New South Wales could be a good sign for Victorian retailers heading into Christmas,” said Rumbens.
“The December quarter will be the first with limited restrictions since the second wave crisis began in Victoria, and pent up demand was already starting to lift spending through the month of October.”
The quarterly also reported an improved labour marker, extension of JobKeeper and increased consumer confidence as creating a more optimistic outlook for the December quarter than once expected.
“Combined with good news on fewer restrictions, state borders opening up, and vaccines, this has enabled consumers to feel more at ease with spending heading into December,” said Rumbens.
