Budget providing relief, however not sufficient to spark an optimistic outlook

04 June 2024

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Consumer sentiment decreased 0.3% to 82.2 in May 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. The March ABS retail sales decreased by 0.4% (seasonally adjusted). Despite a brief lift in spend in February 2024 (+0.3%) related to ‘Swift-onomics’, cost-of-living pressures continue to dampen consumer discretionary spending. NAB Online Sales growth continued to slow in March but remained positive at 0.3%.

The Federal Budget’s quoted $7.8 billion cost-of-living support, in addition to the stage 3 tax cuts, is aimed at providing some relief to consumers. However, it may be little relief for retailers with many consumers noting they will use the support to rebuild personal finances rather than spend it. Although the relief measures were relatively well-received, there may have been some overly optimistic or “unrealistic” expectations from consumers prior to the announcement, evidenced by sentiment falling rapidly after the Budget announcement. We expect consumers will continue to be frugal, evidenced by the trend of consumers increasingly spending more on home brands at supermarkets, and trading down on alcoholic beverages. Many retailers offered discounts prior to the official 14 May 2024 start date of Click Frenzy, aiming to capture their customers' share of wallet prior to competitors. For retailers, bespoke promotions are essential as not all customers have been impacted by the current economic climate in the same way. A focus on cashflow and clearing aged inventory will help retailers to “batten down the hatches” in this consumer-restrained period.  

Consumer confidence

  • vs prior month - (0.3%)

  • vs pcp - 4.1%

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment remains deeply pessimistic, decreasing 0.3% to 82.2 in May 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. The survey was undertaken in the week during the announcement of the Federal Budget, which, despite offering cost-of-living relief, did little to boost sentiment, possibly due to consumers’ “unrealistic” expectations ahead of the Budget announcement. Responses from those surveyed prior to the announcement showed an index of 86.8 (+5.3% vs April (82.4)) while those surveyed after recorded an index of 76.6 (-7.0% vs April 2024). Notwithstanding this, 18% of consumers expect to be better off because of the Budget compared with 21% expecting to be worse off - the least negative response in the last 14 years, with exception of the Budget stimulus during the pandemic. Sentiment is also varied between states, with Queensland recording a sharp 11.0% increase versus New South Wales recording a decline of 9.8%. This follows the Queensland state government recently announcing its own energy bill relief. In relation to the overall sub-indexes, there were slight increases in consumer optimism surrounding ‘family finances next 12 months’ (+0.7%), ‘economic conditions next 12 months’ (+0.7%), and ‘economic conditions next 5 years’ (+2.6%). However, these were offset by deteriorations to ‘family finances vs a year ago’ (-3.6%) and ‘time to buy a major household item’ (-2.8%). Pessimistic buyer sentiment and spending restraint is expected to continue in the second half of 2024 as consumers limit purchasing major household and discretionary items. Although some may use the cost-of-living and tax relief as an opportunity to spend, many consumers noted a focus on repairing their current finances and rebuilding saving buffers instead. Retailers could be facing a tougher sale environment for an extended period, meaning they will need to “batten down the hatches” and focus on the basics. This can be achieved by revisiting previously successful strategies aimed at their customer’s specific circumstances, whilst also focusing on cash generation. Excellent financial modelling of various scenarios, updated with timely sales data analysis, is essential.

Retail sales

  • vs prior month - (0.4%)

  • vs pcp - 1.0%

  • 12 months v pcp - 2.2%

Source: Australian Bureau of Statistics

The ABS Retail Sales data for March 2024 showed a seasonally adjusted decrease of 0.4% compared to February. The contraction in sales was driven by decreases in ‘clothing, footwear and personal accessory retailing’ (-4.3%), ‘department stores’ (-1.6%), and ‘household goods retailing’ (-1.4%), with ‘food retailing’ (+0.9%) being the only sector to experience growth in March. Retail sales volumes decreased for the fifth time over the last six quarters, reflecting a consistent trend of consumers reducing their discretionary purchases. The December 2023 quarter recorded the only rise in volume over the past 18 months due to Black Friday discounting boosting volumes. Most states and territories recorded a decrease in retail sales in March with only the Northern Territory (+0.9%), Western Australia (+0.6%) and Queensland (+0.4%) recording growth. Despite the lift in spend from “Swift-onomics” in February, consumers have reverted to remaining hesitant to spend in discretionary categories. The ABS Monthly Household Spending Indicator in March 2024 was subdued for discretionary, decreasing by 0.1% compared to non-discretionary which increased by 4.0%, highlighting the shift in consumer behaviour due to ongoing cost-of-living pressures. March 2024 sales were 1.0% or $0.4 billion higher than March 2023 sales which after considering inflation over the period, represents a decline. Retailers are hoping that the Federal Budget initiatives combined with Stage 3 tax cuts on the horizon spark consumers into action during May and June, in time for the financial year-end sales.

Online retail sales

  • vs prior month - 0.3%

  • vs pcp - 15.1%

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales index increased slightly in March 2024 by 0.3% (seasonally adjusted), following a revised February 2024 result of 1.1% (previously 1.0%). The seasonally adjusted March 2024 sales dollars were 15.1% above March 2023 sales. There were mixed results by category with ‘fashion’ (+2.7%) and ‘games and toys’ (+2.3%) recording the highest growth while ‘home and appliances’ (-0.9%), takeaway food (-0.4%), ‘grocery and liquor’ (-0.3%) and ‘personal and rec’ (-0.2%) experienced declines. It is expected that online retail sales will continue to outpace broader retail sales in May/June. Online retail sales are estimated to total $56.5 billion and represent 13.3% of retail sales reported by the ABS during the 12 months to March 2024.