Aussie spending trends over 2020/21
What happened? In 2020/21, retail trade rose by 6.1 per cent in real (inflation-adjusted) terms and rose by 9.1 per cent in nominal terms – the latter being the fastest growth in 31 years. We assess some of the extraordinary trends over the past year.
Fastest spending growth: Over 2020/21, spending on recreational goods exploded by 23.9 per cent with spending on furniture up 21.7 per cent.
Records: Over 2020/21, record annual nominal growth in spending was posted by clothing retailing (up 19.4 per cent); footwear retailing (up 16.2 per cent); and furniture & floorcovering retailing (up 21.7 per cent).
Implications: It has been a roller coaster year in retailing and the next twelve months looks like being more of the same. Covid-19 will continue to have a dominating influence over consumer spending in the next year. This may lead to sharp changes in sales on a monthly or quarterly basis. So it will be important to maintain a broader perspective. For instance clothing sales rose sharply over the past year, despite volatile quarterly changes.
Retail trade data is important for consumer-focussed companies.
What does it mean?
• We already knew this before looking at the figures. Over 2020/21 the biggest lift in Aussie retail spending was recorded by toys, sporting goods and entertainment media, up almost 24 per cent. Next fastest growth was spending on furniture, rugs and carpets, up almost 22 per cent. Clearly in lockdown Aussies made sure they had enough desks, chairs and tables to work efficiently. And we made sure we had enough things to entertain ourselves.
• Clearly it has been an extraordinary year for the Aussie consumer. And therefore an extraordinary year for Aussie retailers and, more broadly, Aussie businesses.
The final figures for the 2020/21 financial year are in and retail spending topped $365 billion, up 9.1 per cent on a year earlier. Higher prices accounted for 3.0 per cent of that 9.1 per cent lift with the volume of goods purchased up 6.1 per cent.
• The 9.1 per cent growth in retail spending was the biggest increase for a financial year since 1988/89 – 31 year ago. And the real increase of 6.1 per cent was the biggest lift in 17 years (since 2003/04). And that is even more remarkable given that Australia was in recession for the first three months of the past financial year.
• What this highlights is the ability of the economy to bounce back. And it shows why the Reserve Bank remains confident that the economy will lift over the next year. But clearly, suppressing the delta variant is no small task. And the re-opening of the economy will require more and more Australians to get the jab.
• Continued progress with the economic recovery will also require fiscal and monetary policy to remain super-supportive and super-stimulatory. Now is not the time for fiscal repair. The mantra of ‘keeping business in business and keep people in jobs’ must continue.
• How do you explain the extraordinary growth?
• As always, there is not one explanation. But importantly, governments and the Reserve Bank have successfully employed stimulus measures to support the economy. JobKeeper, JobSeeker, cash payments, mortgage holidays, rent relief, access to superannuation, lower mortgage payments have all played a role in keeping consumers in jobs and in keeping people spending. Closure of foreign borders has also meant that Aussies have directed spending internally rather than tripping overseas.
• The lockdowns also have caused people to spend – especially in the early days of the pandemic. Aussies have been active in outfitting their home offices and in revamping living/working structures to ensure that they have an efficient and comfortable work-life balance. Furniture, electrical goods, recreational goods and hardware have been in big demand over the year.
Lockdowns and social distancing
• What has been clear over the past year is the reaction function of consumers – the response to announcements of mobility restrictions and social distancing regulations.
• When lockdowns are mooted or have just begun, Aussie consumers have actively bought daily staples such as paper towels and toilet paper, together with mince, packaged meals and eggs. Some people stock up in fear of shortages (perversely, creating shortages) while others stock up to reduce the frequency of supermarket visits, and thus reduce the potential for exposure to the virus.
• In lockdowns, people constantly assess the goods that are required to be able to work efficiently at home while also being able to enjoy leisure pursuits.
• Supermarkets, homewares, electrical good outlets, recreation goods are generally seen as the main winners from lockdown. Retail services, department stores, newsagents and cafes/restaurants are generally seen as the main losers.
• When mobility restrictions such as lockdowns have eased or ended, non-essential stores resume operations. And this has generally led to some reversal of positions. For instance, people return to eating out rather than staying at home, leading to a switch in spending from supermarkets to restaurants.
• For retailers regarded as non-essential, having efficient online delivery capabilities such as contactless pickups or courier/postal deliveries, have been important in supporting and driving sales.
Winners & losers
• Over 2020/21, spending on recreational goods (toys, sporting goods, entertainment media) soared by 23.9 per cent with spending on furniture & floor coverings up by 21.7 per cent.
• Records for fastest annual nominal growth in spending were posted by clothing retailing (up 19.4 per cent); footwear retailing (up 16.2 per cent); and furniture & floorcovering retailing (up 21.7 per cent).
• Going back a quarter, over the full 12 months to March, record spending annual growth was achieved by recreational good retailers, hardware and electrical good outlets. But growth rates for each sector eased from highs over the full 2020/21 financial year.
• If we look back over the 2020 calendar year, liquor retailing recorded its fastest spending growth on record (up 26.6 per cent), whereas cafes and restaurants recorded the biggest annual fall in sales (down 25.4 percent).
• The only retail sector to record a fall in nominal spending was newsagents & books (down 2.2 per cent). Spending at cafes and restaurants rose by 3.9 per cent in 2020/21.
Prices: inflation & deflation
• Over 2020/21, prices rose fastest at “Other Retailing” (includes online stores) (up 6.2 per cent), furniture & floor covering stores (up 5.0 per cent) and supermarkets & grocery stores (up 4.7 per cent).
• Prices fell most at clothing outlets (down 1.4 per cent).
Published by Craig James, Chief Economist, CommSec