etail rebound as Victoria emerges from lockdown
Retail trade

Retail trade: Retail trade rose by 1.4 per cent in October – slightly below the preliminary estimate of 1.6 per cent – after declining 1.1 per cent in September. Retail trade is up 7.1 per cent over the year.

Retail trade data is important for consumer-focussed companies.

What does it all mean?

• The retail trade data is ‘old news’. Preliminary estimates were issued on November 20 showing a 1.6 per cent lift in retail spending in October following declines of 1.1 per cent in September and 4 per cent in August. But in the final release, retail spending is now seen up 1.4 per cent to be 7.1 per cent higher in October compared to a year ago. Retail sales are 6.5 per cent above pre-pandemic levels in February.

• Renewed social distancing restrictions saw Victoria’s retail store shutdown rate average 80 per cent up until October, according to Kepler Analytics data. But Victorian retail spending surged 5.1 per cent after Covid-19 restrictions were eased. Of course, Greater Melbourne didn’t fully emerge from lockdown 2.0 until November.

• The historic moves in retail trade during the pandemic have been complemented by big divergences across regions. As also highlighted by the Commonwealth Bank Group’s high-frequency credit and debit card spending data, annual growth in retail spending has been strongest in relatively ‘virus free’ regions.

• In fact, the Bureau of Statistics data today showed sales surging by 15.7 per cent in October from a year ago in Western Australia. ‘The West’ has benefited from greater consumer mobility during the pandemic. NSW has been a relative laggard, due to periodic Sydney ‘virus’ flare ups constraining consumer behaviour. But retail sales showed tentative signs of recovery, lifting 0.7 per cent in October.

• There continue to be big divergences across retail trade categories. But there was an encouraging rebound in services-related spending in October. Social distancing measures during the pandemic have hit services particularly hard, but spending on clothing (+10.8 per cent) led the recovery in the month, while cafes, restaurants and catering services (+6.8 per cent) and the department stores (+4.5 per cent) retailing categories were strong.

What do the figures show?

Retail trade – October 2020

• Retail trade: Retail trade rose by 1.4 per cent in October. The annual growth rate rose from 5.6 per cent to 7.1 per cent.

• Non-food retailing rose by 2.5 per cent in October. The annual rate climbed from 1.0 per cent to 3.6 per cent.

• Sales by chain-store retailers and other large retailers fell by 0.8 per cent in October, but was still up 8.8 per cent on a year ago.

• At a sub-group or detailed level, spending rose most in October: Clothing retailing (+10.8 per cent), followed by Cafes, restaurants and catering services (+6.8 per cent); Department stores (+4.5 per cent); Takeaway food services (+4 per cent); Newspaper and book retailing (+3.3 per cent); and liquor retailing (+3.1 per cent).

• At a sub-group or detailed level, spending fell most in October: Hardware, building and garden supplies retailing (-1.8 per cent); Electrical and electronic goods retailing (-1.7 per cent); “Other” recreational goods retailing; and Household goods retailing (-1.0 per cent).

• Across states/territories in October: NSW (+0.7 per cent); Victoria (+5.1 per cent); Queensland (-0.5 per cent); South Australia (+0.6 per cent); Western Australia (+1.0 per cent); Tasmania (-1.4 per cent); Northern Territory (‑0.6 per cent); and the ACT (-0.1 per cent).

• Supermarket spending: The Australian Bureau of Statistics (ABS) said, “Turnover rose for Perishable goods (4.7 per cent), Non-perishable goods (3.3 per cent), and All other products (2.7 per cent) in October 2020 compared to September 2020, in original terms. Retail turnover for all three categories continue to remain at higher levels when compared to October 2019. Annually, Perishable goods rose 10.3 per cent, Non-perishable goods 10.1 per cent, and All other products 9.3 per cent. The higher levels of revenue reflect a continuation of more food being prepared at home during the pandemic.”

• Online sales: The ABS said, “The total online series rose 0.2 per cent in seasonally adjusted month-on-month terms in October 2020, following a fall of 1.6 per cent in September, and a rise of 5.8 per cent in August 2020. These results followed large rises in March and April 2020, as consumers turned to online shopping as a way of complying with regulations introduced to encourage social distancing. Stage 3 and 4 restrictions in Victoria saw closures of stores in August, especially in Melbourne, and this led to a further rise in online sales in August. In through-the-year terms, the seasonally adjusted series rose 70.8 per cent in October 2020 compared to October 2019. In the 12 months from March 2019 to February 2020, total online sales averaged growth of 14.4 per cent. Coinciding with the shift to online purchasing at the outset of the COVID-19 pandemic in Australia, total online sales has averaged an annual rise of 67.1 per cent from March to October 2020.”

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 investors?

• Aussie households are cashed-up. Government payments, superannuation fund withdrawals and tax cuts have boosted household balance sheets and cashflows. The household savings ratio surged to record-highs during the peak of the pandemic and was near 19 per cent (of income) in the September quarter. The improving job market and twin wealth effects of rising home and share prices are an additional boost.

• Due to high unemployment, tax cuts could be saved. But with consumer confidence at 7-year highs in November (Westpac-Melbourne Institute survey) and restrictions on non-retail activity easing, Aussie retailers could be in for a bumper Christmas trading period. Already discretionary retailers like Harvey Norman, JB Hi-Fi and Super Retail Group are enjoying strong earnings. And the massive turnaround in new motor vehicle sales in November could be a precursor to further consumer-driven economic activity in 2021. Pent-up demand, elevated savings, easing joblessness and continued international border closures are all positive for the domestic retail outlook.

Published by Ryan Felsman, Senior Economist, CommSec