Shopping through gritted teeth
Retail spending has picked up but consumer sentiment has drifted lower, according to a Deloitte Access Economics report released on Tuesday.
“Despite improvements in unemployment expectations and an increase in business confidence, consumer sentiment is at a low point with concerns over financial risks,” Deloitte Access Economics partner David Rumbens said in the report.
“And in the face of oncoming competition from the likes of Amazon, widespread aggressive discounting to lure in the consumer dollar, and rising energy prices, it’s likely retailers aren’t so happy either.”
The latest ANZ-Roy Morgan Consumer Confidence Index fell 3.8 per cent last week to 109.8, largely offsetting gains over the last fortnight as consumer confidence tumbled. Consumers’ views towards current and future economic conditions dipped, with householders’ confidence in the economic outlook at its lowest level in 16 weeks.
Rumbens said intense competition is keeping all retailers focused on lower prices, while Amazon’s local launch will lead to further downward pressure that – combined with rising energy costs – is expected to dent profits.
The pressure facing local retailers is illustrated by new CommSec figures showing Australia dropped from being the 17th cheapest place in the world to buy a new iPhone in 2016 to 25th in 2017.
An iPhone 7 32 GB is $A1,079 in Australia, about 24 per cent more expensive than in the US.
CommSec chief economist Craig James said the stronger Aussie dollar means Australia is no longer amongst the cheapest places in the world to buy popular technology.
Nonetheless, Deloitte expects retail spending to continue to grow at 3.6 per cent in the year to June 2018, the same as in the previous 12 months.
But volume growth rather than price growth is expected to underpin trade in the year ahead.
Retail volume growth for the year to June, 2017 was 2.5 per cent and Deloitte has forecast it to lift 3.4 per cent in the year ahead.
The report also found catered food is winning out against supermarkets, with consumers weighing up the trade-off between saving time and saving money over the past year, with catered food spending up by 3.3 per cent over the year to June 2017 in real terms, compared to 1.2 per cent real spending growth for supermarkets.
Meanwhile household goods outpaced all other non-food retail categories in the year to June 2017, with 5.8 per cent real turnover growth. On the other side of the spectrum, real turnover growth for department stores remains weak over the past year at 1.3 per cent.
Rumbens added that energy prices have put pressure on retail margins.
“The average price of electricity in Australia grew by 116.4 per cent over the ten years to June 2017, and 7.8 per cent over the last year alone,” he said.
“This adds further pressure to retailer margins, as intense competition keeps prices down. On the bright side for retail costs, retail wage growth is growing even slower than the record low average wage growth across the economy.”
Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.