The Australian, June 1, 2017
The nation’s fragile retail sector is already in recession, according to National Australia Bank chief economist Alan Oster, and this could drag the economy down as anxious consumers rein in spending on discretionary goods such as fashion and apparel.
Mr Oster described retail as being in a “terrible’’ state, and although NAB is forecasting retail trade figures to show a 0.3 per cent bounce for April when the Bureau of Statistics releases the latest data this morning, there are growing concerns it could miss and post a decline.
NAB’s snapshot of spending habits across customers reveals fragile consumer confidence underlining the recessionary conditions now swirling through the retail sector, with March quarter spending patterns revealing retail trade among the worst-performing sectors.
This has also translated to a heavy sell-off in shares of retailers with the nation’s retail stocks having had the worst start to a year since 2008.
Worst hit are Myer, down 37 per cent, Harvey Norman, off 27 per cent, and Super Retail Group, which is down 26 per cent. JB Hi-Fi is off 18 per cent.
Players such as Oroton, The Reject Shop, Adairs, footwear retailer RCG and Godfreys have issued profit warnings.
In recent days listed car retailers AP Eagers and Automotive Holdings have downgraded earnings guidance, citing slowing sales on the east coast.
NAB said that based on about 4 million daily customer transactions, growth in spending on consumption-based goods and services by bank customers slowed to 2 per cent over the year to the first quarter of 2017, down sharply from 3.1 per cent over the year to the fourth quarter of 2016.
“These findings reinforce recent official data that also paint a fairly downbeat picture of very soft consumer spending growth during the March quarter,’’ Mr Oster said.
“In discretionary retail it is terrible — we have a 0.3 per cent target for Australian Bureau of Statistics retail sales figures, and all my gut reactions say this could be too high.
“I think retail itself is in a recession. It is basically deteriorating and not contributing much to growth at all and we don’t see it improving in the short term.’’
Department stores Myer and David Jones have this week pushed the button on their midyear clearance sales, slashing as much as 50 per cent from prices for key clothing and apparel lines.
According to the NAB customer spending behaviour survey released yesterday, retail trade spending slowed to 1 per cent in the first quarter, making it one of the worst performing industries over this period.
While retailers, particularly discretionary stores around fashion and apparel, are missing out on a growing share of consumer wallets, spending growth was led by arts and recreation services (up 12 per cent), financial and insurance services (7.9 per cent) and accommodation and food services (7.5 per cent).
Retailers are buckling under the worst trading conditions in several years which has seen many retail chains collapse under the financial pressure.
The local arm of British fashion chain Topshop went into administration last week, joining a string of recent retail failures, including Herringbone, Rhodes & Beckett, David Lawrence and Payless shoes, which highlighted weak spending and a shift to online shopping.
Citi economist Josh Williamson recently described the sector as “verging on recession’’ following a spate of poor retail data.
In three of the past four months retail spending has slumped, recording month-on-month declines for the first time in almost six years. It sent the year-on-year pace of retail sales to 2.1 per cent in March.
David Plank, ANZ’s head of Australian economics, warned that next week’s official GDP figures could shape up as “weak”. The bank is tipping a rise of 0.1 per cent for the March quarter. “We are wary of the potential downside risks to our already soft estimate,” Mr Plank said, citing slow wages growth.
The NAB data revealed a fall in average monthly spending during the March quarter to $1997 in metropolitan or “city” areas ($2171 in the December quarter). Spending in regional area was also softer over the same period.
Overall spending growth in metropolitan areas eased to 1.6 per cent in the first quarter (2.9 per cent in the December quarter), and to 3.2 per cent in regional areas.
But spending behaviours continued to vary considerably across the country, Mr Oster said.
“In the capital cities, customer spending ranged from 6.2 per cent in Hobart to -2.8 per cent in Perth, where the post-mining slump impact on spending remains very evident.’’
Spending was fastest in Canberra (5.2 per cent) and NSW (2.9 per cent). Victorian growth was 2.8 per cent.
Investment bank JPMorgan estimates heavily indebted consumers face an extra $7 billion in costs as banks respond to regulatory concerns by raising interest rates out of cycle from moves in official cash rates. This is likely to put an additional strain on discretionary spending among consumers.
Despite pressure on the sector, Treasury is sticking to its forecast that economic growth will accelerate this year from 1.75 per cent to 2.75 per cent next year, with Treasury secretary John Fraser tipping a better global economy will help lift local activity.