Following difficult trading conditions post global financial crisis, 2010 was a period of recovery for Australian retailing. As such, retailers found themselves operating in a highly competitive landscape, fighting for consumers and market share. For consumers, coping strategies throughout 2010 focused on reducing discretionary spend as well as a greater focus on long-term value. Unemployment rates recovered and the Australian dollar finished the year at 98 US cents, however, a number of interest rate rises and election uncertainty created an unstable environment. Nonetheless, the Australian retail industry generated revenue of $242.6 billion, up 2.4 per cent on the previous financial year.
The performance of retail sectors varied and the contribution of each to the industry was mixed, with clothing, footwear and personal accessory retailing and department stores suffering from a downturn in consumer spending. The former category saw a one per cent decline from the previous year, with revenue falling from $19.5 billion to $19.3 billion, namely from decreased takings over the March, June and December quarters.
The June quarter showed strong growth from March in both years; 10.2 per cent in 2010 compared to 12.4 per cent in the previous year. This was followed by a decline in the September quarter, with the 2009 sales decline more pronounced, falling 6.3 per cent as compared to 0.6 per cent in 2010. With low likelihood of future stimulus payments, this reflected consumer hestitation to purchase frivolous fashion items, and shoppers restricted spending to essential items.
However, the sector recovered in the December quarter, recording growth of 23.1 per cent to reach $5.7 billion in turnover as discretionary spending increased in line with rising consumer confidence. Looking at year-on-year for the December quarter, revenue decreased by 5.5 per cent on 2009 figures, which is in line with fluctuating consumer confidence during that period. When referring to department store performance, it is important to note the sector includes operators that sell a range of products within the one store such as clothing, perfume, glassware, housewares, footwear, electrical goods and other household products. In 2010, the sector recovered total revenue of $18.6 billion, a decrease of 1.2 per cent from the previous year. The graph indicates that department stores had a moderate start to 2010, with sales increasing by 10.3 per cent from March to June, but decreasing six per cent in terms of year-on-year figures. There was a slight decline in the September quarter, with sales decreasing by 0.9 per cent, leading to heavy discounting by retailers in the lead-up to Christmas in an effort to encourage consumer spending. This played a crucial role in the final quarter. Growth in the December 2010 quarter closely mirrored the final quarter of 2009, with turnover slightly increasing on the previous quarters by 36.9 per cent and 40.7 per cent respectively.
Turnover in December reached $5.9 billion, a marginal decrease from the $6 billion generated in 2009. Unfortunately interest rate rises during 2010 attributed to the decrease in spending for department stores, with particular strain leading into Christmas as the Reserve Bank of Australia increased rates during a November meeting.
Over the course of the current year, different factors at different times will influence growth in the retail sector. The predicted decline in the unemployment rate signifies a rise in the number of working consumers, leading to growth in potential shoppers. The overall growth in income levels will positively affect the discretionary spending power of consumers and enable them to demand a broader selection of goods across higher price brackets. However, consumers are also likely to continue showing restraint by channelling spare funds into savings and paying off debts, reducing consumer’s discretionary spending power. Sales in the department store sector are likely to be driven by store expansion and online channels, however competition will remain strong as industry concentration increases. Competition is also expected to remain strong in the clothing, footwear and personal accessory retail sector, with retailers intensifying their fight for consumer dollars as an increasing number of international retailers such as Zara enter the Australian market.?
