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Strongest retail sales in 4½ yearsRetail trade
Monthly retail trade: Sales rose by 1.2 per cent in November after increasing by 0.5 per cent in October the strongest outcome in 4½ years. Spending rose across all states and territories, led by electrical and electronic goods, together with household and other retail goods. Retail trade data is important for consumer-focussed companies.
What does it all mean?
US e-commerce retailing giant Amazon may have officially launched in Australia in early December, but Aussie retailers have their own reasons to be cheerful. Sales from traditional ‘bricks and mortar retailers’ rose by 1.2 per cent in November, the strongest monthly outcome since February 2013.
The increase in household spending was driven largely by a sharp rise in electronic goods purchases. The Apple iPhone X went on sale at Apple stores across Australia in early November. It was widely reported at the time that there was a shortage of the smart phones with only three million iPhone Xs being available globally.
Purchases of household goods rose strongly, coinciding with the Black Friday sales. Interestingly, the ANZ-Roy Morgan Consumer Sentiment Index showed a 2.4 per cent increase in the measure of whether it was a good time to buy a major household item during November.
Sales at department stores, however, were weak. Large department stores have been under significant pressure given aggressive discounting and intense global competition after the arrivals of Uniqlo and H&M. Consumers have benefited from falling goods prices while retailers have struggled with price deflation. Margins have declined and retailers have responded by cutting costs.
Supermarket sales were surprisingly flat despite the normalisation of food prices.
When not attending the footy or cricket at the Adelaide Oval, South Australians clearly love to hit Rundle Mall. South Australia’s annual growth rate of retail sales rose to 8-year highs.
What do the figures show?
Retail trade
Retail trade rose by 1.2 per cent in November after increasing by 0.5 per cent in October – the strongest outcome in 4½ years. Annual sales growth rose to 2.9 per cent from 1.8 per cent.
Non-food retailing rose by 2.0 per cent in November to be up 3.2 per cent over the year.
Spending rose the most for Electrical and electronic goods retailing (up by 9.3 per cent), Household goods retailing (up by 4.5 per cent) and Other retailing (up by 2.2 per cent).
Spending fell the most at Department stores (down by 1.1 per cent) and Supermarket and grocery stores (down 0.1 per cent).
Spending rose across all Australian states and territories in November: NSW (up by 1.0 per cent); Victoria (up by 1.8 per cent); Queensland (up by 0.7 per cent); South Australia (up by 1.4 per cent); Western Australia (up by 1.4 per cent); Tasmania (up by 1.8 per cent); NT (up by 0.2 per cent); ACT (up by 1.2 per cent).
Sales by chain-store retailers and other large retailers rose by 1.7 per cent in November – the best outcome in four years – to stand 5.8 per cent higher over the year.
What is the importance of the economic data?
The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
What are the implications for interest rates and investors?
While today’s very positive retail sales outcome may have largely been event driven with the release of the Apple iPhone X and Black Friday sales, private sector business and consumer confidence surveys had signalled that an improvement in retail spending carried forward from October into November. Consumer confidence surveys appear to have bottomed in August and are now at 4-year highs in the New Year.
While there has been much focus on slow wages growth, the impact of strong jobs growth cannot be underestimated. The total number of job vacancies are at record highs, implying further strong hiring intentions by employers. Together with record low interest rates, household consumption should be modestly supportive of economic growth in 2018.
Pricing pressures, however, are unlikely to subside given technological changes and global competition, including internet retailing and online sales. Retailers need to compete and offer something unique to consumers – an uncommon offering. Smaller retailers may win from the entry of Amazon if they elect to be suppliers in the ecommerce marketplace. But bigger retailers, such as department stores still face significant challenges.
CommSec expects no change to interest rates until well into 2018.
Originally published by Ryan Felsman, Senior Economist, CommSec