Retail sales strong, for now

Australian retail turnover rose 0.9% in May, reaching another record level, according to the Retail Trade figures released by the Australian Bureau of Statistics (ABS).

The rise in May was the fifth consecutive monthly rise in retail turnover. This followed rises of 0.9% in April, 1.6% in March, 1.8% in February and 1.6% in January.

Quarterly Economy Wide Statistics Director Ben Dorber says there was growth across five of the six retail industries in May as spending remained resilient.

“Higher prices added to the growth in retail turnover in May,” he says. “This was most evident in cafes, restaurants and takeaway food services and food retailing.”

Department stores had the largest rise, up 5.1%. This was followed by cafes, restaurants, and takeaway food services (1.8%), other retailing (1.5%), food retailing (0.6%) and household goods retailing (0.4%).

Clothing, footwear, and personal accessory retailing was the only industry to record a fall, down 1.4%, following three consecutive monthly rises.

Of the states and territories, NSW had the largest rise in retail turnover, up 1.6%, followed by Victoria, up 1.3%

Turnover also rose in South Australia (1.9%), Western Australia (0.2%), Tasmania (1.1%) and the Northern Territory (0.6%).

The only states or territories to record falls were Queensland, down 0.4%, and the ACT, down 0.3%. The fall in Queensland follows increased turnover from the flood recovery in March and a boost from tourism in April.

Industry comments

Australian Retailers Association (ARA) CEO Paul Zahra cautions that while sales are strong, the growth is unlikely to be sustainable, and also reflects the higher consumer prices that are now flowing through the economy as inflationary pressures take hold.

“It’s pleasing to see retail sales maintaining their strong trajectory – however, the figures aren’t necessarily a true reflection of how the sector is performing in an inflationary landscape,” he says.

“The high sales volumes can be partially attributed to the higher consumer prices we’re seeing across the economy, particularly in the food industries. Whilst sales are elevated, business costs are increasing enormously, in many areas at a far higher rate.

“It’s unlikely we’ll see retail spending maintain these levels as the rising cost of living begins to take hold on family budgets. A generation of homeowners are experiencing their first interest rate hikes, so there’ll be some natural belt tightening. When people rein in spending, discretionary purchases are some of the first things they cut.

“Leasing costs are going up for many businesses, along with fuel and energy, while supply chains continue to be constrained. There’s been no let up to the disruption since Covid hit; things have only intensified since the war in Ukraine and many small businesses in particular are challenged right now.

“These challenges are running alongside the labour and skills shortages that continue to hamstring many in the industry.”

Similarly, National Retail Association (NRA) Chief Executive Dominique Lamb comments: “This news is certainly welcome, although we do know that higher prices implemented, particular in food retailing and hospitality, has contributed to this growth.”

“Despite cost of living and interest rates rises, consumers are still spending necessary items across food, department stores and household goods,” she says.

“But we are seeing less spent on personal items as consumers grapple with the state of the economy.”

Help needed

Mr Zahra says the “majority” of ARA members believe the situation has gotten worse over the past three months, “and without government intervention, the situation will only deteriorate”.

Ms Lamb adds that the state and sector analysis showed that the strong results were not uniform across the country and urges policy makers to keep in mind that the east coast is still recovering from floods and other areas from the absence of tourists.

“Some will feel the pain from the recent rate hike more sharply than others, and some will struggle to pay the additional superannuation and minimum wage rise coming into effect at the end of this week,” she says.

“Decision makers need to be aware that there are thousands of small businesses who are still doing it tough, even though some states and some sectors are thriving.”

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