Retail remains resilient amid re-emerging crisis

However, ANZ data suggest once lockdowns are over the impacts on spending and consumer confidence also end. This is a good sign for fourth quarter retail - if the various lockdowns end by then.

"The rising popularity of remote working may permanently skew more of household spending towards home-related goods and the retail sector."

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Retail will fare better

Retail is more resilient to lockdowns than other types of spending with access to online shopping and meal delivery services increasing as the sector adjusts to iterative lockdowns.

With international borders closed and state border closures and lockdowns discouraging interstate travel, retail is likely to continue capturing an elevated share of household spending.

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Structural changes that arose from the pandemic, including the rising popularity of remote working may permanently skew more of household spending towards home-related goods and the retail sector.

Remote working is here to stay

Businesses and households alike are preparing for remote working long-term. According to a recent Australian Bureau of Statistics (ABS) survey, 70 per cent of large businesses have long-term intentions for remote working and home buyers are requesting home offices in newly built homes.

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Office occupancy surveys by the Property Council of Australia confirm no central business district (CBD) offices are running with as many people as they were before the pandemic, despite substantial employment growth since 2019.

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Retail property – particularly in CBDs – faced elevated vacancies last year. The rise in remote working is likely to permanently shift some retail spending away from CBDs into suburban shopping centres. The increase of online shopping also puts retail property at risk.

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ANZ card data suggest online channels captured 27.5 per cent of non-food retailing in July 2021. This is far higher than pre-pandemic levels.

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The popularity of payment gateways has also risen with online shopping. ANZ data show since 2018 spending through payment gateways, including buy now, pay later, has grown 80 per cent.

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Household consumption outperforms

ANZ Research expects household consumption growth to outpace the increase in economic activity over the next 12-18 months subject to lockdowns not being a permanent feature.

Household incomes are likely to be supported by the falling unemployment rate and an eventual acceleration of wages growth. Continued fiscal support during lockdowns also helps lessen the impact on incomes.

The spike in household savings in 2020 could lead to more consumption, even without an increase in household incomes, as households draw down their savings buffer. Increasing housing prices and low interest rates will also support consumption.

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Quarterly spending higher than pre-COVID

Retail volumes grew 0.8 per cent quarter-on-quarter in the second quarter, driven by strong growth in dining and takeaway and fashion. Compared with pre-COVID (fourth quarter 2019), household goods showed the biggest improvement with dining and takeaway growing the least.

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Nominal spending on food retail has grown strongly since the fourth quarter of 2019 but this is mostly due to food inflation not volume growth.

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Smaller state renaissance

Australia’s smaller states have generally fared better than New South Wales and Victoria through the pandemic.

Retail spending in smaller states has been supported by fewer lockdowns and some migration from Melbourne and Sydney. Smaller states also have less exposure to tourism spending on retail which means they lost less when international borders closed and interstate travel was limited.

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Skew of sales to large businesses has abated

The share of nominal retail sales going to large businesses has generally trended up over time and peaked in 2020. In particular, dining and takeaway sales to large businesses grew from 40 per cent of sales pre-COVID to a peak share of 58 per cent.

The increase in grocery sales also skewed the data towards large businesses. This year the balance between large and small businesses has normalised.

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Overall, retail spending per person is up 10.6 per cent on pre-COVID figures mainly due to the shift from services, travel and entertainment spending to retail.

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ANZ Research expects that trend to continue until international borders reopen.

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