Third biggest fall in NSW retail spending

Retail trade

What happened? Retail trade fell by 2.7 per cent in July – the most in seven months – to be down 3.1 per cent on a year ago, the weakest annual growth rate in 15 months. Overall retail turnover hit a 9-month low of $29.8 billion. Spending fell by 8.9 per cent in NSW in July – the third biggest monthly decline on record (series from April 1982). But sales were strongest in Tasmania (up 2.7 per cent). Nationally, the biggest decline in sales was in Clothing, footwear and personal accessory retailing (down 15.4 per cent), followed by Cafes, restaurants & takeaway food (down 12.3 per cent) and Department stores (down 11.4 per cent).

Implications: Australia’s largest retailers – Woolworths and Wesfarmers – have both released bumper financial year 2021 earnings results in recent days. Surging profits during the pandemic have led both firms to announce that they will return capital to shareholders through massive share buybacks, while dividends have been increased. While investors have been rewarded, the retail giants have cautioned that sales are down so far in financial year 2022 due to lockdowns with have provided no guidance for the year ahead amid global supply chain issues.

Retail trade data is important for consumer-focussed companies.

What does it mean?

• Aussie retailers have mostly released strong earnings results for financial year 2021 during the August reporting season. Retail giants Woolworths and Wesfarmers both announced massive pandemic-induced profits as consumers flocked to supermarkets, increased their online purchases and filled their pantries with staples during lockdowns. And home cooking has been preferred to eating out as we juggle work and home schooling.

• The blockbuster results have been accompanied by a return of capital to shareholders through share buybacks, higher dividends and special dividends. Yesterday, Woolworths announced a $2 billion off-market share buyback with the grocer’s final dividend increased by 15 per cent over the year to a fully franked 108 cents per share.

• And today retail conglomerate Wesfarmers unveiled a $2.3 billion or $2.00 per share return of capital to investors. The company will also pay a fully franked full year dividend of 178 cents per share, up 17.1 per cent on a year ago.

• But in a sign that retailers face more challenging trading conditions, the retail giants have cautioned that sales are down so far in financial year 2022 due to lockdowns with no guidance provided for the year ahead amid global supply chain issues. In fact, Wesfarmers reported that Bunnings’ sales have declined 4.7 per cent so far in financial year 2022 on the corresponding period last year with combined Kmart and Target sales 14.3 per cent lower over the period.

• The official retail trade data released by the Bureau of Statistics (ABS) today shows the hit to Aussie retailers from store and shopping mall closures in July. Virus restrictions were tightened in Greater Sydney, while Victoria, South Australia and Queensland all re-imposed ‘stay-at-home’ orders as new Covid-19 infections surged during the month.

• Variations in government restrictions showed up in the July data with spending plunging 8.9 per cent in NSW – the third biggest monthly decline since records began in April 1982. Sales were down 3.3 per cent in South Australia – the second largest monthly decline in 16 years. But relatively “virus free” Tasmania had the biggest lift in spending (sales up 2.7 per cent).

• Categories such as food and supermarket retailing continue to benefit the most from pandemic stockpiling of food-stuffs and staples. Food retailing lifted by 2.3 per cent in July. But services orientated categories like Department stores (down 11.4 per cent) and Cafes, restaurant and takeaway food retailing (down 12.3 per cent) plunged on the back of reduced mobility and store closures. And spending at Clothing, footwear and personal accessory retailers dropped 15.4 per cent in July as more Aussies were forced indoors with winter-related apparel likely piling up at retailers.

• Retail spending is likely to continue to fall in August and September as lockdowns drag-on in NSW and potentially Victoria. Additionally, global supply chain disruptions, rising unemployment and potentially reduced housing goods-related demand, due to last year’s demand pull-forward, could also weigh on consumer spending.

• Commonwealth Bank (CBA) Group economists expect consumer spending to drop around 7.0 per cent in the September quarter, before rebounding by around 5.8 per cent in the December quarter as the NSW and Victorian economies re-open. CBA weekly credit and debit card spending figures suggest that spending on services will be more heavily hit than goods spending due to lockdowns. While consumption is expected to rebound in the lead up to Christmas – assuming vaccination rates reach mandated thresholds and economies re-open – partial restrictions and border closures could mean that spending grows by a more modest 1.5 per cent in each of the first two quarters of 2022.

What do you need to know?

Retail trade – July

• Retail trade fell by 2.7 per cent in July – the most in seven months – to be down 3.1 per cent on a year ago, the weakest annual growth rate in 15 months. Overall retail turnover hit a 9-month low of $29.8 billion.

• By component, Food retailing (up 2.3 per cent) and “Other retailing” (up 0.6 per cent) were the only components where spending increased in the month. The biggest decline in sales was in Clothing, footwear and personal accessory retailing (down 15.4 per cent), followed by Cafes, restaurants & takeaway food (down 12.3 per cent), Department stores (down 11.4 per cent) and Household goods retailing (down 2.2 per cent).

• Retail sales across states & territories in July: NSW (down 8.9 per cent); Victoria (up 1.3 per cent); Queensland (down 0.9 per cent); South Australia (down 3.3 per cent); Western Australia (up 1.2 per cent); Tasmania (up 2.7 per cent); Northern Territory (up 2.2 per cent); ACT (up 2.1 per cent).

Published by Ryan Felsman, Senior Economist, CommSec