Aus Christmas retail: bah humbug

However, a challenging year for the Australian economy has meant shoppers are warier of spending big – and it’s having an impact on retail sales numbers.

"American-style shopping events such as Black Friday and Cyber Monday, as well as increased sales events through the year, may impact the total spending of households for the Christmas season.”

The Christmas effect

The difference between sales in December and the average month in a given year indicates the response of Australian shoppers to the Christmas season – a Christmas effect.

However, since the late 1980s that effect has weakened considerably - from an average of 44.5 per cent between 1983 and 1989, to just 28.5 per cent in 2018. Most of that drop has been in non-food categories such as electronics, books and homewares.

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The lead up to Christmas is having less of an impact on household spending on non-essential items. The growth of online retail and, in particular, heavy discounting now starting in mid-November, is likely to be one reason why December is looking slightly more like other months.

The advent of Made-in-America shopping events such as Black Friday and Cyber Monday, as well as increased sales events through the year, may impact the total spending of Australian households for the Christmas season. 

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Household budget constraints could also be playing a part in the weakening effect.

Expenses like health costs, utility bills and education fees have grown faster than non-essential expenses in the last 10-15 years, tightening household wallets further at Christmas.

Moreover, these challenges are affecting the Christmas effect every year, not just when household spending is particularly tight. The difference between December sales and other months declines most years, even in years when spending on the “non-essentials” is particularly strong.

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Fashion’s Christmas cheer

Fashion has been the exception. The Christmas effect for fashion has actually strengthened since online shopping took off. Fashion sales have also been much stronger than other non-food categories over the last few years.

The transformation of Australia’s fashion offering in recent years, including increased competition from online channels and bricks-and-mortar entries of international retailers, may have helped fashion become more resilient in the face of household budget challenges.

Within fashion, footwear, jewellery and other accessories are the main drivers of the strong Christmas effect.

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Holiday slopes

Some categories of non-food retail sales see a bigger Christmas effect than others.

Department stores, recreation goods and footwear/accessories retailers see the strongest Christmas effect, with 70-80 per cent higher sales in December compared with other months. On the other side of the spectrum, homewares and hardware sales see only a modest uplift during the holiday season.

Most food categories see a weaker Christmas effect because a household’s regular food shopping can’t be delayed until Christmas, whereas “waiting until Christmas” to benefit from sales promotions or to give gifts is relevant for non-food goods.

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Department stores have historically seen 80-100 per cent higher sales in December than other months and generally have the strongest Christmas effect. In recent years, recreation goods and footwear/accessories have seen strengthened Christmas effects, while the department store uplift has weakened – all three now sit at around 80 per cent higher December sales.

This is likely to represent a diffusion of the Christmas effect from department stores to specialty stores. This is in line with the long-term decline of department store sales growth, as shoppers shift their spending to specialty retailers.

The next tier of the Christmas effect is clothing, liquor and electrical goods which see an uplift in December sales of between 45-60 per cent. All three categories have seen a decline in the Christmas effect in the last few years.

Hardware, building and garden supplies have seen the sharpest decline in Christmas effect of any category, from one of the strongest categories in the 1980s to one of the weakest now. Furniture and homewares saw a smaller uplift in 2018 compared with recent years, perhaps reflecting a decline in housing turnover and therefore the accompanying house-warming related Christmas gifts.

The Christmas effect for food categories is more stable than for non-food but also more modest. Dining out and takeaway show the weakest Christmas effect while specialised food retailers (butchers, bakeries, delis etc) show a stronger effect and benefit from heightened demand for holiday-specific ingredients and food.

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Bah humbug.

Adelaide Timbrell is an Economist and David Plank is Head of Australian Research at ANZ