Retailers may not agree, but the Reserve Bank says Australia’s higher savings rate is good for the nation, and it’s the service providers rather than sellers of goods who are winning over the consumer.
Speaking in Sydney yesterday, assistant governor Philip Lowe said the rise in household savings has been widespread across the population, with higher housing prices and debt levels, and falls in the prices of investment portfolios and a general increase in uncertainty triggering the increase.
While housing is gobbling up a large percentage of our costs, with the share of expenditure on housing rising about 5% to 18% from 1984 to 2010, “the second longer-term change is a decline in the share of spending on goods and an increase in the share of spending on non-housing services.”
Drawing on spending figures on clothing, footwear, household equipment, furniture, holidays, education and the national accounts, Lowe says the numbers “suggest that although households are saving a higher share of their income than in the past couple of decades, they have also been prepared to increase their spending on services quite significantly.”
According to Lowe, the reason for this shift is difficult to explain, although the exclusion of online spending from sales figures, the general household shift towards “experiences”, and the aggregate 7.5% jump in household disposable income over the past year have likely boosted spending on services.
“There are significant changes in saving and spending patterns taking place in Australia. The effects of these changes are probably most pronounced in the retail sector, with both increased saving and the switch towards services lessening growth in spending on goods. As a result, conditions are quite difficult for many retailers,” Lowe concluded.
The comments match a recent push by larger retailers such as Myer to improve their instore experience by offering services such as Botox that cannot be offered online.
Peter Strong, executive director of the Council of Small Business of Australia, says Lowe’s comments about the struggles of many retailers and the benefits of providing services as well as goods matches what he’s hearing from small book retailers.
Strong, who has recently opened up a wine bar to complement his bookstore in Canberra, says booksellers, sporting goods and the hospitality industry are taking different approaches to win back business.
“The booksellers who have suffered are the ones who can’t reinvent because of urban planning,” Strong says.
“Social networking is important, such as Twitter.”
Retail expert and WHK principal David Gordon says the key issue is how retailers will cope with the reality they are now attracting a smaller proportion of disposable income.
Gordon expects retailers will need to think outside the box, such as restaurants selling goods, books in cafes, and cafes in stores such as Ikea and Masters.
It might also be the case that landlords take a closer look at anchor tenants, and which shops go best clustered together.
ANZ said the Lowe speech suggested that “challenging times” would persist for the retail sector.
“This may possibly be the case even if the RBA… cuts interest rates given the RBA attributes a good portion of the recent rise in household savings to heightened uncertainty amongst households,” it said.
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