ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT

Return to ‘Normal’ Poses Risk to Retailers

e1bdbd0b-ab3d-4d03-863a-39d404ca614e

Despite retail spending defying the odds and ramping up during the first year of the Covid-19 pandemic, a transition to more normal spending behaviour could mean that 2020’s windfalls are temporary.

Australian retailers have been helped along by the country’s successful handling of the pandemic relative to peer nations, in addition to the government’s fiscal and monetary support, including the JobKeeper scheme.

Retail spending recovered strongly in the second half of last year, more than offsetting the slump in June, to end higher in the year to December 2020, with Australians spending a record $350 billion in retail purchases during the year.

Retail volumes surged 6.4 per cent over the year to the December quarter, bolstered by a post-Covid restriction reopening catch-up in Victoria, and were up 2.5 per cent in seasonally adjusted terms, according to the Australian Bureau of Statistics.

Deloitte partner David Rumbens said while 2021 was shaping up as an economic recovery year, retailers were now likely to experience a slowdown in growth with a drop in incomes expected to detract from spending.

“As is so often the case with Australian retail, and this is the same for many other national economies too, there are still some challenges ahead,” Deloitte Access Economics partner David Rumbens said.

“Our fiscal stimulus tap has been turned down to a drip, meaning less money for households to spend.

“Luckily, they are still more likely to feel like spending what there is given the good news on vaccines and less and less restrictions across activities that drive retail spend.”

Nominal and real Australian retail turnover

Nominal and real Australian retail turnover

^Source: ABS, Deloitte Access Economics

Online sales lifted by 2.5 per cent during the past 12 months to represent 9.1 per cent of the retail market, as the growing trend towards online purchases accelerated due to limiting public outings and international travel restrictions keeping consumers at home.

The outlook for retailers plays into a broader theme of a cyclical rotation in the equity market, as businesses that typically do best during an economic expansion fare better than the defensive corners of the market, such as consumer staples.

Around 8.2 per cent of household goods retailing in 2020 was due to increased spending as a share of income, which now may be at risk going forward as households reassess their spending behaviour.

“Unfortunately for many retailers in 2021, the economic recovery and re-opening of industries will more likely be a headwind than a boon,” Rumbens said.

“A return to ‘normal’ poses a bigger risk to some retailers [due to] more opportunities for non-retail spending, and an increasing shift back towards travel and hospitality over the year.

“This includes household goods retailing, where the durability and one-off nature of the purchase increases the risk of a sharper pull back in spending.”

Supermarket sales growth is likely to remain elevated long after coronavirus lockdowns, with food retailers, particularly Woolworths and Coles experiencing stronger-than-expected profit growth.

“It will take time for certain parts of spending to reboot, including hospitality and travel as border disruptions remain a common feature,” Rumbens said.

“If these issues are wholly resolved by vaccines, the shift in spending behaviour could be more pronounced and result in a bigger handbrake for retail spending.”

Rumbens said the surging housing market will provide further support to spending across the year, but the spending segment a pull-back towards the later stages of the year.

According to CBRE, new retail developments are forecast to drop dramatically over the next five years, with new supply expected to fall from 2022 with asset valuations bottoming out this year.

ADVERTISEMENT
TOP STORIES
CONTRIBUTE TO THE CONVERSATION
Show Comments
advertise with us
The Urban Developer is Australia’s largest, most engaged and fastest growing community of property developers and urban development professionals. Connect your business with business and reach out to our partnerships team today.
Article originally posted at: https://www.theurbandeveloper.com/articles/deloitte-retail-forecasts-2021

NEWSLETTERS

Join 50,000+ property professionals who subscribe to our email briefings.

Australia’s most trusted source of property news and intelligence.