Who's winning and who's losing in the Australian retail market? Is retail on the rise or fall? Which states are recording growth? Which states are recording declines? And how are department stores faring against clothing retailers?
First, the numbers
The fourteenth edition of the AFGC CHEP Retail Index shows that year-on-year growth in retail sales has slowed.
The Index was 4.9 per cent higher in June 2014 compared to June 2013, a moderation in the pace of increase from a rise of 5.8 per cent between March 2014 and March 2013.
On a quarterly basis, the Index was 5.2 per cent higher in the June quarter 2014 compared to the June quarter 2013.
Growth in the Index is expected to remain at around its current pace, with a rise of 5.1 per cent over the 12 months to August 2014, as well as over the 12 months to the September quarter 2014.
ABS Retail Trade trend data has also weakened in recent months, consistent with the AFGC CHEP Retail Index.
The latest data shows that year-on-year growth in nominal retail trade was 5.3 per cent over the year to May 2014.
Retailers experienced a weaker sales result over the year to March 2014 than forecast in the previous AFGC CHEP Retail Index.
The growth of 5.5 per cent over the year to March 2014 compares with the prediction of 5.8 per cent growth.
Now, some analysis
An easing in the growth of the AFGC CHEP Retail Index in recent months is a sign that some of the momentum in retail sales has been lost recently, after growth in the Index had picked up earlier this year.
Australian Bureau of Statistics data shows that retail sales growth (in trend, nominal terms) edged down from 5.6 per cent in January 2014 to 5.3 per cent in May 2014.
However, while the pace of retail sales growth has eased in recent months, its pace in January 2014 was the strongest for more than four years, and the current pace of growth in retail sales remains quite strong.
Several factors have taken their toll on retail spending in recent months.
Of particular note, the Federal Government’s belt tightening May budget was a tough one for Australian families, and while some of the announced measures are yet to pass the Senate, consumer sentiment has fallen following the budget.
Meanwhile, underlying income growth has remained quite weak. Unseasonably warm weather in some of Australia’s capitals has also hit the sales of clothing retailers in recent months.
Sales at department stores have continued to underperform with no significant growth over the past year.
Sales growth at clothing retailers has slowed to around 5 per cent over the 12 months.
Of the other retail sectors, food and household goods retailers are also seeing sales growth of around 5 per cent, with sales growth at household goods retailers maintaining their pace in recent months despite the easing of growth seen across other retail sectors.
Retail performance across the states continues to evolve with Australia’s slowing resource construction activity which has seen growth in retail sales in the major mining states fall behind the national average.
Western Australia is now seeing no retail sales growth over the past year, while retail sales growth in Queensland is around 4 per cent.
This compares with retail sales growth of around 6 per cent in Victoria, around 8 per cent in NSW and 9 per cent in Tasmania.
The region with the weakest retail sales growth is now the ACT where retail sales have fallen over the past year.
Australia’s retail sector has enjoyed a good run of late despite underlying weakness in labour income growth.
While the Federal budget and warm weather did not help sales in recent months, interest rates have stayed low and both sharemarkets and housing prices have risen, providing a timely boost to household wealth.
Looking ahead, employment growth has been showing some encouraging signs.
A return to a better rate of jobs growth, combined with current low interest rates, and the tail end of a house price surge all suggest 2014-15 may be a pretty good year for retail.
Retailers of household goods and other consumer durables may especially benefit from strengthening housing construction over the next twelve months.
However, continuing nervousness over the Federal budget will detract from that healthy picture, while at some point interest rates will rise and growth in housing activity peak, suggesting some further headwinds to spending growth.
On balance, those factors may see retailers maintain sales growth at around its current level over the next few months.
That result would be consistent with the latest AFGC CHEP Retail Index data.