The retail industry has suffered under the worst conditions in 20 years and things are about to get worse, according to the latest Deloitte Access Economics Retail Forecasts report, which predicts sales will grow by only 1.5% in 2011-12.
The predictions come as the Productivity Commission continues to hold public hearings in order to hear from businesses and industry bodies on how the Government should help the industry as it battles the shift to offshore sales.
The new Access report recognises 2010-11 has been a “disastrous” year for the retail industry, with sales growing just 1.3% in the worst result in two decades. Although incomes have risen, Access says the real problem is a lack of willingness to spend money – and it’s being seen across all sectors.
Only “other retailing”, which includes newsagents and chemists, have performed well with sales up 5.1%. And household goods are performing well, but elsewhere, the report states the retail sector is “barren”.
“Retailers now face the prospect of going from bad to worse. Sharemarket falls have eroded some wealth and seen consumer confidence plummet further. Recent data on jobs growth has also been less than encouraging.”
Economists have warned volatile sharemarkets are likely to erode confidence, especially after local shares plummeted 3.5% yesterday in one of the worst one-day trading sessions seen in recent years.
There are only two possibilities – volatile sharemarkets cause the RBA to cut rates, or consumer confidence slowly returns over time. Access says the latter is the more likely option, but it means that businesses will have to suffer until next year at the earliest, and until 2012-13 when a 3.3% growth rate is predicted.
A number of factors are keeping sentiment down – sharemarket and housing prices falling, jobs growth losing pace, falling housing activity and lower consumer confidence.
“More worryingly for retailers, consumers are now much more concerned about their own job security than they were a few months ago.”
“Recent significant layoffs by large Australian companies Qantas and Bluescope Steel may further affect the confidence of future employment by Australian consumers. Workers who are concerned about their future employment prospects are more likely to save rather than spend.”
Forecasts for individual sectors indicate the pain is widespread. Speaking in terms of volumes, food retailing is set to grow only 2.4% this year, with department stores up 2%. Clothing and footwear will grow 0.5%, household goods by 1.9%, and “other retailing” and “non-food” both up 1.6%.
Cafes and restaurants will contract by 1.4%, Access says. “Unlike most other areas of discretionary retail spending, this sector does not reap the benefits of a rise in the Australian dollar.”
“Cafes and restaurants are also facing the possibility of higher wage costs in the service sector. On the other hand, a subsiding of the spike in food prices will help relieve pressure on margins, while the Australian dollar may start to depreciate a little from current lofty levels over the next year.”
However, despite the negative outlook, there is still hope. Access says positive growth from outside the retail sector will eventually boost jobs and income growth, which will lead to a recovery in some retail sectors.
On the positive side, it says, commodity export prices remain high, while it also notes that many businesses are beginning to invest more – there are $832 billion worth of major projects underway or in planning, up by 14.7% over the past year.
Further support also comes from the fact interest rate hikes are nowhere to be seen, with the RBA ready to cut rates if the need arises.
“By financial year, following the two-decade low of 1.3% real inflation-adjusted retail sales growth in 2010-11, there may be a modest improvement to 1.5% growth in 2011-12, with the bulk of that growth occurring the other side of Christmas.”
“A more solid rate of jobs growth and easing of consumer caution might then see retail growth lift to 3.3% in 2012-13.”
Specific sectors are set to enjoy higher growth as well during that time, such as “other retailing”, set to grow 4.9%, along with non-food up 3.7%, clothing and footwear up 3.5%, and household goods up 3.4%.
Cafes and restaurants, however, are only set to grow 1.7% during that year, and only by 2.7% over the next five years.
“Other retailing” will grow the most over the next five years at 4.4%, followed by clothing and footwear at 4%, non-food at 3.7%, and food at just 2.1%. Department stores will grow the least, looking at only 1.3% growth over the five-year period.
State-wise, only Western Australia and Queensland will see sales growth over 3% this year, at 4.8% and 3.1% respectively. New South Wales will grow just 0.4%, while South Australia, Tasmania and the Northern Territory will grow 2.1%, 1.9% and 2.9% respectively.
Victoria will see retail sales fall by 0.1%.
However, conditions will improve in 2012-13, with NSW up 2.7%, Victoria up 3.3%, Queensland up 4.1%, South Australia up 2.1%, Western Australia up 4.1%, Tasmania up 2.9%, and Northern Territory up 2.6%.
Access also predicts good times next year, saying the current slowdown in the rate of jobs growth may have run its course, and that the household savings rate may be stabilising.
“Pockets of the Australian economy are still going very strong and this will support a reasonable rate of GDP growth in 2011-12. That should allow jobs growth to re-gather pace over the next year and provide a better support for retail spending.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
