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Wednesday, October 4, 2023

Shoppers heavily discount the retail sector

While interim sales updates in January from some retailers (Myer, JB HiFi, and Super Retail Group, for example) told a story of strong earnings in the latter part of last year, other updates (Best and Less, Kogan, and Baby Bunting ) told a weaker story. .

And, on the last day of the month, December retail sales data from the Australian Bureau of Statistics confirmed that it was a “black” month for the sector as a whole: sales fell 3.9% in December, traditionally an end of boom year with Christmas. and sales seasons after Christmas.

Markets expected weak performance: a 0.2% drop was forecast, but not the drop, which followed a surprise 1.4% gain in November on Black Friday and other one-off sales.

The strong performance in November had many analysts wondering if the sharp increase was due more to December sales being brought forward; they were and the retailers again proved too smart in trying to trick consumers into two rounds of one-time purchases. within a month, especially when the same households face higher interest rates, inflation, and rising costs of energy, gasoline, cars, and falling real wages, despite fanciful warnings from markets and the commercial media about a spiral of prices and wages.

The last time retail sales were in negative territory was the 3.7% drop in December 2021 thanks to the impact of Covid lockdowns and social distancing restrictions.

The most telling statistic in the ABS release was that retail sales fell in all states and territories, “with most falling by more than 3.0 percent,” according to the Bureau.

That will please the Reserve Bank when it looks at the monetary policy setting. It’s a clear sign that consumers are pulling back (just like in the US, where the first estimate of fourth-quarter GDP and other data from last week showed a clear slowdown in consumer spending).

Strong December retail sales, on top of the solid 1.4% gain in November, would have prompted the central bank to reach for the 0.50% interest rate lever. On the other hand, the drop in December (which produces a fall of 2.5% in the two months) will cause the lever marked at 0.25% to be pulled next Tuesday.

Annual sales growth fell to 7.5% in December from 7.5% in November. With inflation rising to 7.8% (as measured by the Consumer Price Index) in 2022, retail sales actually fell in real terms.

The December drop should also be a warning to investors and others that mid-June retail will be a war of attrition, a routine in which an increasing number of retail products and services could become cheaper as the month progresses. year.

The ABS data mocks claims by some economists and banks of a multitude of rate hikes for the economy from the rBA in 2023. The latest was Deutsche Bank’s forecast of four 0.25% rate hikes (for a maximum cash flow of 4.1 per year). End).

Ben Dorber, head of retail statistics at ABS, said: “The big drop in December suggests that retail spending is slowing due to pressures from the high cost of living.”

“Retailers reported that many consumers had responded to these pressures by doing more holiday shopping in November to take advantage of the heavy promotional activity and discounts as part of the Black Friday sales event.”

“This is the first monthly drop in retail billing for 2022, after eleven consecutive monthly increases. Retail billing remains elevated at its sixth highest level in the series and increased 7.5 percent for the year.

“Seasonal spending patterns continue to change and evolve around Black Friday and the holiday period.

“Although there was a strong increase in original terms for December, as expected before Christmas, this year’s increase in original terms was less than those typically seen in the last months of December. This has led to a large seasonally adjusted drop,” Dorber said.

“Billing fell in industries previously driven by November Black Friday sales. Department stores had the largest drop (-14.3 percent), followed by the retail sale of clothing, footwear and personal accessories (-13.1 percent), the retail sale of household items ( -7.8 percent) and other retail sales (-4.6 percent).

“Food retail was the only industry to post an increase in December (+0.3 percent), while cafeteria, restaurant and takeaway services were relatively flat from November.”

Glenn Dyer

Glenn Dyer has been a financial journalist and television producer for more than 40 years. He has worked for Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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