Among the bustle of this year’s Christmas shopping rush, spare a thought for the hundreds of retail managers or owners, and their staff, who will be looking for new jobs in the new year.
While the last Bureau of Statistics figures for total retail spending beat expectations, shoppers have been gradually tightening the purse strings for three years.
Overall retail growth has slid from more than 6 per cent per annum in 2013 to just above 3 per cent now.
The most worried retailers are to be in found in specific sectors, with Macquarie Bank recently warning clients that a number of clothing retailers in particular are likely to go into administration in the new year.
Payless Shoes and Howard’s Storage World have both gone into administration in the past fortnight, though their stores will continue trading for the time being – even a loss-making business can turn a good profit during the Christmas rush, thereby reducing the pain for creditors and shareholders later.
Talk it up
Retail bosses, as usual, are doing a valiant job talking up this Christmas spree. Myer CEO Richard Umbers, for instance, told The Australian this season would be “pretty buoyant”, and Gerry Harvey told the same newspaper that this season was “outstanding”.
Well they’re just doing their job, but Mr Umber’s optimism needs to be taken with an especially large pinch of salt. Not only are household incomes under pressure, but the department store sector of which he’s a part is has struggled to increase sales at all in the past few years.
As the chart below shows, Australian consumers have turned to frittering away disposable income in cafes and restaurants, where they might once have amused themselves shuffling through malls and big retailers.
The department store sector has increased its dollar value of sales by only 2.3 per cent since the GFC struck in 2008.
Worse, when that figure is adjusted for inflation, turnover has actually fallen 13 per cent, or 23 per cent in real per capita terms. Australian shopping tastes really are changing.
The troubled consumer
But this Christmas’s retail story is about a lot more than switching from David Jones or Myer to buying a lavish restaurant meal instead.
Consumers are starting to feel a double pinch.
Firstly, average total weekly earnings – which includes all overtime – has barely kept pace with inflation.
Since early 2012 wages have risen 10 per cent in nominal terms, but the the consumer prices index has risen 8.5 per cent.
That leave’s a real increase in buying power of 1.5 per cent over those years – equivalent to getting an inflation-adjusted pay rise each year of just a third of one per cent.
The second factor squeezing household expenditure is the upward pressure on mortgage rates.
There have been a number of out-of-cycle rate rises already, and more are expected as a flow from the US Federal Reserve’s decision to lift interest rates earlier this month.
That affects roughly one in three households – the other two thirds being renters or older Australians who’ve paid off their homes – but they are households likely to be stacking up presents for kids under the Christmas tree.
Most likely the “outstanding” Christmas season will end up in heavy discounting from Boxing Day onwards, with many retailers reportedly slashing prices early to deal with low consumer confidence.
And after that? Well weak jobs growth, static wages, the ongoing threat of interest rate pressure, and higher import prices due to the falling dollar are likely to weigh more on shoppers than this year.
That didn’t stop Treasurer Scott Morrison trying to paint the current weak conditions as a blip in this week’s mid-year budget update.
His second mid-year update confidently predicted “household consumption is expected to continue to grow at a moderate rate, supported by further employment growth and low interest rates”.
Yes, and Santa’s bringing me a Ferrari. We all have to have dreams I suppose.