Australian retailers face a “make or break” Christmas period as ongoing lockdowns and reduced stimulus payments weigh on spending.

Data from the Australian Bureau of Statistics shows retail turnover dropped 4.2 per cent in August – snapping a three-month growth streak that had fuelled hopes of a faster recovery.

Economists said the drop was unsurprising, given the strength of the rebound over the past three months and looming cuts to JobKeeper and JobSeeker.

But retailers fear the situation will get much worse if restrictions in Victoria are not reassessed.

Deloitte Access Economics partner David Rumbens told The New Daily the sharp drop in turnover was driven by two key factors.

The first was the tough Stage three and four coronavirus restrictions in place across Victoria.

Retail turnover in the state fell 12.6 per cent in August, while the remainder of the country saw a drop of only 1.5 per cent.

The second driver was a drop in spending outside Victoria, which until August had been much higher than its pre-COVID level, Mr Rumbens noted.

“The August numbers weren’t a great surprise because we’d seen a very strong bounce in retail spending in the prior months,” he said.

“Particularly in July when we had this curious result where even though we’re in the worst recession in nearly 100 years, retail sales were well above levels seen pre-COVID.”

Retail turnover lifted 3.2 per cent in July and was up roughly 12 per cent on the same month in 2019.

Mr Rumbens said the sales bump was unsustainable – partly because many of the items driving the boom (household goods) are not regularly replaced.

“The rest of the country is coming off a strong rate of growth,” he said.

“Chances are in the next few months you won’t get too much more growth because that’s been propped up by government spending, which we’ll see start being slowly taken away.”

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The federal government will cut the rate of JobSeeker by $300 a fortnight from Friday September 25.

Coming months ‘crucial’ for retail

Mr Rumbens expects turnover to pick up in November and December, assuming Victoria sticks to its roadmap and allows shops to reopen at the end of October.

But Australian Retailers Association CEO Paul Zahra said the industry wants to see restrictions ease sooner, warning that the months ahead will be “quite telling” for the industry.

Mr Zahra said the restrictions in Victoria will continue to drag down overall sales in September, offset in part by “continued, albeit tapered” government support.

“The final quarter of 2020 will be crucial for many stores fighting for their future, with the Christmas shopping period a make or break time for many,” he said.

“It will be a shopping period like no other, and have a lasting impact to shape the future of Australia’s retail industry.”

The sector has been hard hit by the pandemic, and suffered its worst quarter in 20 years in the three months to June 30.

August’s weak result was driven by large falls in household goods retailing, although turnover for the month remained above pre-COVID levels.

Clothing and footwear retailers, and cafe and takeaway food businesses, also saw notable declines over the month.