Confidence in retail sector returns: Illion

Business owners and executives expect the retail sector to improve next quarter, according to Illion’s latest Business Expectations report.

Illion’s retail sector index, a measure of forecasted performance based on the responses of 1200 respondents, is up 44.8 per cent from last quarter and up more than 120 per cent compared to this time last year.

“In recent years, retailers have been hit hard by cautious consumers, weak wage growth, high debt and low savings. It looks like the sector is now bouncing back, driven by record interest rate cuts, a bottoming in the housing price market and a pick up in real wage growth,” Illion chief executive Simon Bligh said. 

“The retail sector – which employs nearly 1.3 million Australians – is a lead indicator for overall economic performance, and if these expectations solidify into actual performance, we could be looking at the beginnings of a very real improvement in economic conditions in the third or fourth quarter of 2019.”

According to the report, all forecasted economic indicators in the retail sector – sales, employment, profits and investment – have improved on a quarterly and annual basis.

Retail expectations index. Source: Illion.

This could be the result of consumers switching back to local options after the addition to GST to international online purchases [earlier in the year], said Illion’s economic adviser Stephen Koukoulas.

“It is noteworthy that online retail sales continue to grow and in May 2019 made up 6.2 per cent of all transactions, up from 5.6 per cent a year earlier,” Koukoulas said. 

“The improved retail forecast supports the RBA’s own expectations of a pick-up in consumer spending and the overall economy in late 2019 and over 2020.”

Despite this, other business sectors are not as positive toward the remainder of the year, with the report finding the overall business index down 4 per cent from the prior quarter, and down 9.3 per cent from the prior year – the lowest point since December 2017.

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