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Australian retail outlook – spending up, confidence down, sales peaks shifting

Head of Client Insights Institutional, ANZ & Associate Director Insights, ANZ Institutional

2022-11-16 16:29

Needless to say, we’re living through a period of enormous uncertainty and that’s reflected in ANZ Insight’s outlook for the Australian retail industry. Yet, certain trends are evident that will endure beyond the current interest rate cycle and geopolitical tension.

Current data show the retail industry continues to perform strongly and we expect this to continue into the holiday seasons.  But counterbalancing this, consumer confidence  has dropped to record lows suggesting shoppers are still happy to spend - but they don’t feel that good about it.

Consumer demand remains strong and people are still spending despite feeling the pinch at the purse.  On the other hand, consumer confidence is at recessionary levels hence our view we won’t stop spending but we’re not feeling good about it. “

Meanwhile, inflationary pressures will suppress disposable income in the new year although by how much and how quickly remains unknown.

ANZ Household Spend data from January to October 2022 show broad spending is approximately 10 per cent higher than for the same period in 2021.  

Yet peak spending periods are undergoing a profound shift with the American spending bonanzas of Black Friday and Cyber Monday becoming entrenched in Australia. ANZ data show online weekly sales are substantially higher during the Black Friday and Cyber Monday period.  In 2021, industry-wide sales were 2.6 times higher, clothing four  times higher and electronics twice as high.

ONLINE SPEND IN THE LEAD UP TO XMAS

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In 2022, we expect Black Friday and Cyber Monday to continue to grow and drag forward traditional pre-Christmas and Boxing Day spending. Overall, the end of year holiday sales period for 2022 is expected to be remarkable for Australian retailers, shadowing the trends observed in 2020 and 2021. Based on ANZ data, monthly 2022 online sales are approximately 10 per cent higher when compared with the same period last year.

Analysing online retail weekly spend for the period beginning the first week of November - defined as Tuesday-Monday to best capture weekend spending patterns -  leading up to the week of Black Friday and Cyber Monday shows a significant spike in online sales.

The majority of retailers experienced strong online sales and revenue growth through 2020, the first year of Covid, and saw a repeat of the success in 2021.  The level of online sales performance surpassed that recorded in 2019.

Top quartile clothing brands experienced almost four times the weekly online sales during the 2021 Black Friday and Cyber Monday week when compared with the average value of online sales in the first week of November 2019.

Outlook

Consumer demand remains strong and people are still spending despite feeling the pinch at the purse.  On the other hand, consumer confidence is at recessionary levels hence our view we won’t stop spending but we’re not feeling good about it. 

There are genuine concerns building in the community about inflation and interest rates and living costs. While the banks reported no signs of a “mortgage cliff” in their annual results just announced, they did warn of higher stress for more recent borrowers.

These opposing conditions present a fork in the road for retailers.

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Inventories

Retailers have been stocking up in reaction to supply chain disruptions for the past two years yet the economic outlook will inevitably lead to demand softening.  High levels of ‘buffer stock’ risk future margin compression should consumers pull back.  In order to shed excess inventories, retailers might be forced to discount.

Geopolitical tensions and ongoing protectionist measures globally mean supply chain concerns remain significant. Managing that tension will be a critical challenge in the year ahead.

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ESG

Australian retailers are increasingly focused on environmental, social and governance (ESG) concerns with some key emerging trends supporting the view ESG is becoming integral to retail business strategies.

ANZ considers the key ESG areas most applicable to the retail sector are Scope 1 and 2 Net Zero commitments - that is, carbon emissions either emitted directly by a company or under its control - utilisation of renewable energy sources in operations, commitment to reduce waste diversion to landfill and recycling initiatives, and the development of ethical supply chains.

These trends will be driven by both consumer preferences and regulation.

Australian retailers do lag global best standard however there is increasingly more focus, time, energy, capital and importantly rigour on ESG. 

ANZ data show the following areas are gaining the most attention in the retail sector:

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The next challenge

The shift we are seeing towards the November ‘spendathons’ imported from America has been driven by the take up of ecommerce but online sales continue to grow in importance all year round. This change in channel contribution is increasingly important. It is harder to promote branding in the digital world.  Competition is at a different level of ferocity.

Meanwhile, online sales are often made in tandem with the collection of goods at the nearest physical store. Does that make the store – again – a new competitive frontier?

Tim Suffield is Head of Client Insights Institutional ANZ, and Daniel Ling is Associate Director Insights Institutional ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

anzcomau:Bluenotes/Economics,anzcomau:Bluenotes/Research
Australian retail outlook – spending up, confidence down, sales peaks shifting
Tim Suffield & Daniel Ling
Head of Client Insights Institutional, ANZ & Associate Director Insights, ANZ Institutional
2022-11-16
/content/dam/anzcomau/bluenotes/images/articles/2022/November/Screen Shot 2022-11-16 at 4.26.13 pm.png

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