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INDUSTRY INSIGHT READING BETWEEN THE SHOPPING LINES OF COVID TIMES What is the latest consumer confidence data telling us and what can we expect? TBy McGrathNicol Advisory Partner Jason Ireland. he monthly Westpac consumer sentiment index rose by 18 per cent to 93.8 in September, meaning the measure of consumer confidence is now only 1.6 per cent below the six-month average leading into Covid-19. To put the 18 per cent increase into context, the national measure fell by 17.7 per cent in April at the height of the restrictions, meaning this increase in confidence is equivalent to the “shock” to confidence at the beginning of the outbreak. The index does, however, remain in pessimistic territory where it has been since August 2019. Consumers remain jumpy. Their sensitivity to the release of new information and data relating to the pandemic appears to have driven the September rally. The measure was taken after a material drop in Covid-19 cases in Victoria, but before the announcement of the ‘roadmap’ to lifting restrictions and is underpinned by a 14.9 per cent rise in Victoria. This rebound comes after the index fell by 6.1 per cent in July and 9.5 per cent in August as consumers (nationally) reacted to lockdowns in Victoria, which gave us all a reminder of the possibility and consequences of a second major outbreak. At 93.8 the index is now close to where it stood in June, just after the first restrictions were lifted, with some states (WA, SA, Queensland) above their respective June levels. Victoria remains 5.6 per cent below the June levels despite the improvement in September, while NSW has returned to its June level. Shopping centre data reported by Kepler Analytics shows us that while traffic levels are still down compared with the same period last year, people are returning to physical stores. Better Covid-19 case results appear to have driven increased confidence in spending time in-store, with more normalised store dwell times compared with the same period last year (other than Victoria where traffic levels have been down as much as 99 per cent). Transaction values remain higher (up 22 per cent) as consumers appear more ‘targeted’. While the retail industry had been 22 RETAIL WORLD OCT, 2020 dealing with headwinds for some time pre-Covid, consumer behaviour has become much more volatile. The monthly fluctuations in consumer confidence and ABS retail sales are unprecedented and have shown close correlation. There was some decoupling in the latest ABS sales data (July) with sales growing by 3.2 per cent in a month when consumer confidence fell by 6.1 per cent. This reflects (in part) the strength in household goods retailing and the recovery in cafes, restaurants and takeaways in all states and territories except Victoria. However, we expect to see a continuation of the direct link between confidence and consumer spending as the eager (willing to spend) but more cautious and targeted consumer is watching Covid-19 case rates closely as a basis for deciding how to feel about the economic outlook. Some of the underlying indices show a real change in the consumer view of economic conditions in the next 12 months (still pessimistic but confidence up 41 per cent) and the next five years (confidence up 19 per cent and now neutral). Significant differences across regions are apparent (even within metropolitan areas) with suburban areas performing better than CBDs as people continue to work remotely and are travelling to the city centre less frequently. Foot traffic in August 2020 was down 61 per cent compared with the same month last year in Australian CBDs versus 29 per cent across metro areas. The retailer-landlord relationship has been a varied one across the country. Some retailers and landlords have worked well together through the Covid period and agreed on commercial terms that share the pain through the crisis. Others have clashed (often in the public domain) over rents, such as the well reported Mosaic Brands versus Scentre Group case where more than 100 stores were closed by Scentre while rental terms were negotiated. Loss of income from reductions to rent dealt a material blow to portfolio valuations with all major ASX-listed landlords reporting material write-downs in recent year-end results. Major Australian landlord collections appear to have picked up following an initial drop-off, but they remain below pre-Covid levels. GPT reported July collection rates of 64 per cent compared with just 36 per cent in the quarter to June. This compares with 90 per cent in the quarter to March. Scentre Group reported collections of 86 per cent of gross rent for August, a marked improvement from 28 per cent in April and 35 per cent in May. To put those statistics into context, gross rent cash collections in January, pre Covid, stood