Retailers can breathe a sigh of relief today, with a new Deloitte Access Economics report signalling a gradual return to prosperity for the sector thanks to low interest rates and a strengthening property market.
The Deloitte Access Economics Retail Forecasts report found the results for the 2012 year look promising with strong sales growth in the first half, despite lower momentum in the second half of the year as retailers continued to struggle in a highly competitive market.
Deloitte Access Economics partner and report author David Rumbens told SmartCompany the 2012 results have been influenced by continued higher unemployment figures.
But the 2013 forecast is looking good.
“We think conditions will improve for retail,” said Rumbens.
“The full effect of interest rate cuts has not been fully seen, partly because people are paying debts and party because they’re spending on other items.”
Rising shares and property prices will also provide a “flow-on benefit” to retail, Rumbens said.
“As people’s assets increase in value (if they have shares or own investment properties) that’s more income coming through and even if those assets aren’t income-producing, people feel more comfortable with spending their current income,” he says.
The report forecasts retail growth may lift marginally in the 2013-14 financial year to 2.5%, before improving to 3.6% in 2014-15, as broader economic conditions and housing activity improve.
Total retail sales for the 2012 calendar year increased by 2.2%, but Deloitte Access Economics had previously predicted a growth rate of 3.4% for the year.
“The underlying factor is employment growth has not been strong and that’s really the key. The RBA have been cutting interest rates and this is really a promising sign for retail, but the most important one (employment) is still weak,” Rumbens said.
In line with recent years, the food, café and restaurant sectors are outperforming others.
The food retail segment went up 4.1%, cafés and restaurants increased by 2.9% and the “other” retailing category (which incorporates many pure play internet retailers) rose 3.7%.
Those still suffering from slow growth rates included household goods and clothing retailers and department stores. Growth in the clothing retail sector increased 2.3% while department store growth grew 1.9%.
While retail spending in general rose, Rumbens says it’s still a long way off from the pre-financial crisis industry.
“There’s still growth and that’s better than nothing, it’s been a stronger year than the previous couple, since about 2007. It is a better environment, but it’s still highly competitive.”
He says the food category has always stayed reasonably consistent, despite tougher economic times.
“Food and café spending tends to be more steady. When retail isn’t doing well, food looks better. The figures are inflation adjusted and we have seen pre-deflation in the food category which is unusual and as the prices have come down in food, a lot of people’s shopping has been on actual goods,” he says.
Compared to food, Rumbens says spending on household goods tends to operate cyclically.
“In the past, this category has grown by 10% per annum for some years, but now it hasn’t for many years, but we expect it will return to stronger growth again,” he says.
When it comes to the individual states, the report found Western Australia outperformed every other.
Retail spend rose 9.2% in Western Australia, recording the second year of high growth rates for the state.
The Queensland, the Northern Territory and the Australian Capital Territory also performed well, recording 4.9%, 4.7% and 3.6% respectively.
All these states were above the state-based average of 3.2%.
Below the average were the southern states, Victoria, South Australia and Tasmania, along with New South Wales.
South Australia’s spending grew by 1.3%, New South Wales by 2.2% and Tasmania’s spending actually reduced, falling 1.0%.
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