Importers and household goods retailers will be the largest benefactors of a retail sales recovery in 2011 led by jobs growth, according to a new Access Economics report, but Christmas spending this year is still expected to remain disappointingly low as shoppers save their cash.
While the report says retail spending will remain weak throughout the first few months of 2011 as consumers opt to save their cash, retail sales growth will grow from 3.2% in 2010-11 to 4.1% in 2011-12 during the peak of the next housing construction swing.
Access Economics director David Rumbens says retailers taking advantage of low importing costs will be the biggest winners in 2011-12.
“I think the higher dollar will favour those who have a high importing component, so you’re looking at a lot of clothing and household goods stores. The improvement in housing is not what we had hoped, but that area is still doing well, so furniture and so on will come alongside that.”
The report pins household goods as the sector to watch, with sales volumes growing from 4.1% this year to 5.8% in 2011-12. Non-food will grow from 3.5% to 3.9%, while department stores will also grow from 2.3% to 3.3%.
Food retailing will grow from 0.9% to 4.4%, the report claims.
“We’d expect non-food areas to do well, but food is coming off a very low base, so we expect that to grow as well,” Rumbens says.
But despite the solid outlook for 2011, interest rates and utility costs spiralling out of control are having a dramatic impact on spending. Rumbens says the 2010 Christmas season will give a better performance than last year – but not a great one.
“I think 12 days out from Christmas, we’ll get a frenzy from now on as we usually do, but it’s coming from a pretty weak base. We’re expecting sales to be around 3%, and normally retailers would be hoping for around 6%, so it’s pretty modest.”
The report points out that retail spending is affected by a myriad of factors ranging from house price growth, share market performance and inflation.
“I think in the short-term, what this report reflects is the recent data on retail. The ABS has also shown that retail has had a pretty weak year,” he says. “It’s not going to recover immediately, but we are expecting an improvement.”
The report also points out that the latest interest rate rise will put downward pressure on the construction industry, which will in turn affect household goods and department store retail.
But what will drive further growth in 2011? Rumbens says jobs growth is the key. The report points out that while 2010 may not be an improvement on 2009, rising confidence and pressure on wages should keep discretionary retail spending high.
“Wage gains were put on ice through the GFC but they are now starting to emerge. The September quarter saw the Labour Price Index rise by 1.1%, the strongest result since the start of the GFC. The pick-up in wage gains now underway is occurring not merely due to rapid employment gains, but also to pressures to ‘catch up’ to wage increases foregone in late 2008 and in 2009,” the report states.
Rumbens says the jobs growth, as evidenced by the most recent ABS data, will sustain higher spending.
“It’s really the jobs growth that will underpin retail growth. If you look at recent retail data, and then the jobs data, you’d swear you’re looking at two different economies. But October was from a weak position, and we expect November will be weak because of the rate rise as well.”
“But if you look at the jobs data, we added another 50,000 jobs in November. And jobs growth apart from that is at 3.5% a year. That’s a phenomenal support for income growth, and at the same time we also have wages growth lifting. It’s the underlying confidence that will affect sales.”
However, that jobs growth has been occurring all year and yet retail sales still remain pitifully weak. But Rumbens says this is because interest rates have been holding consumers back, and says a gap between rises and higher wages should push discretionary spending upwards.
“It’s not happening yet because of these interest rate rises taking out the disposable income. And partly spending has been put into other areas like utility bills, and people are saving more. But as jobs growth increases, people will be more willing to spend.”
The report states spending in Western Australia and Queensland will rise higher than in the rest of the country due to the resources boom, with spending to grow from 1.8% to 4.5% and 3.3% to 5.4% respectively.
Spending in New South Wales will grow from 3% to 3.9%, in South Australia from 1.4% to 1.9%, and in Tasmania from a negative result of 2.1% to 2.9%. Spending in the ACT will also grow from 0.2% to 3.2%.
However, spending growth in Victoria is set to fall from 4.9% to 3.9%, with Access saying that interest rates will keep spending subdued, citing data from the Housing Industry Association that claims Melbourne to be the least affordable city in the country.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
