Monday, April 22, 2024

Retail brightness, but challenges remain

Despite the “deep recession” brought on by Covid-19 restrictions, says Deloitte, retail spending has been one of the “bright spots” in an otherwise difficult year for the Australian economy.

According to Deloitte, Australian consumer spending on retail actually grew over calendar year 2020. And while 2021 is shaping up as an “economic recovery year”, for those retailers that were ahead of the pack, a transition back to more normal spending behaviour could mean that 2020’s windfalls are temporary.

Deloitte Access Economics’ latest quarterly Retail Forecasts subscriber report (Q1 2021) found:

  • Retail spending ended 2020 on a “strong note”, with volumes “surging” 6.4% over the year to December quarter.
  • Retailers are “likely” to face challenges ahead, with spending slowing in the second half of calendar year 2021, to end 0.4% lower in the year to December quarter 2021.
  • Those sectors that have benefited the most through Covid-19 lockdown, such as household goods retailing and supermarket spending, are “likely” to face “larger headwinds” in 2021 as restrictions ease and borders open.

Deloitte Access Economics partner and Retail Forecasts principal author David Rumbens says the retail sector tackled the Covid-19 crisis and came out on top.

“Retail spending recovered strongly in the second half of 2020, more than offsetting the slump in June, to end higher in the year to December 2020,” he says.

“And this strong recovery was experienced across much of the sector, with nearly all segments of spend posting year-to gains in the December quarter. Though it was non-food spending that led the way, home-related consumption also remained elevated.

“But as is so often the case with Australian retail, and this is the same for many other national economies too, there are still some challenges ahead.

“Our fiscal stimulus tap has been turned down to a drip, meaning less money for households to spend. Luckily, they are still more likely to feel like spending what there is given the good news on vaccines and less and less restrictions across activities that drive retail spend.”

Unfortunately for many retailers in 2021, says Mr Rumbens, the economic recovery and re-opening of industries will more likely be a “headwind than a boon”.

“This means more opportunities for non-retail spending, and an increasing shift back towards travel and hospitality over the year,” he says.

“A return to ‘normal’ also poses a bigger risk to some retailers who have picked up their share of wallet over the past year. This includes household goods retailing, where the durability and one-off nature of the purchase increases the risk of a sharper pull back in spending.”

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