Rate hike drives a decline in sentiment

Consumer sentiment decreased by 2.6% in November 2023 to 79.9, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. ABS Retail Sales recorded a surprising 0.9% increase in September 2023, which was influenced by warmer-than-usual early Spring weather as well as ongoing inflationary impacts (rather than an increase in transaction volume). ABS Retail Sales Volume results for the September 2023 quarter showed retail sales are down 4.0% on a per capita basis in comparison to September 2022. NAB Online Sales rebounded by 2.9% in September 2023, following three consecutive months of decline. For retailers, the November sales events (Click Frenzy, Black Friday and Cyber Monday) are expected to provide a much-needed boost to sales by attracting cost-conscious consumers looking for a ‘bargain’.

Over the course of 2023 there has been a material reduction in inventory holdings in the retail sector, according to McGrathNicol Advisory’s 2023 Working Capital Report. The report considered a sample of ASX-listed retailers and showed that Days Inventory Outstanding (DIO) decreased by 19 days to 119.5 days in 2023, resulting in $10.5 billion of cash being “released’ from inventory. This is attributable to many Australian retailers reverting from a “just in case” to “just in time” inventory strategy as supply chains normalised, as well as many operators increasing promotional intensity and rationalising product lines/SKUs to attract an increasingly “value” driven consumer. In 2023 the report showed DIO increased by 22.7 days, so the most recent result shows a reversal of that trend. Despite the reduction in inventory holdings in 2023, inventory remains elevated on historical levels and retailers will need to continue to unwind and right-size stock for slowing demand. The November sales and holiday period will be extremely important in helping to achieve stock clearances.

For further detail, refer to McGrathNicol Advisory’s 2023 Working Capital Report.

Consumer confidence

• vs prior month - (2.6%)

• vs pcp - 2.5%

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment declined by 2.6% to 79.9 in November 2023, reversing last month’s increase, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. The survey was undertaken in the week the RBA delivered a 0.25% interest rate rise, placing renewed pressure on consumers after four months of reprieve. Sentiment of those surveyed after the announcement declined to 78.8, significantly lower than those surveyed pre-announcement who recorded a slight gain to 83.0. Consumers are cautious of further rate rises with 73% expecting mortgage interest rates to move even higher over the next 12 months. The November read shows that sentiment has remained broadly flat at the materially pessimistic level of c.80 throughout 2023, despite some material month-to-month movements. This month’s survey also included a question on Christmas spending intentions, with almost 40% of consumers surveyed noting they plan to spend less on presents than 2022.

Retail sales

• vs prior month - 0.9%

• vs pcp - 2.0%

• 12 months v pcp - (3.4%)

Source: Australian Bureau of Statistics

The most recent ABS Retail Sales increased by 0.9% (seasonally adjusted) in September 2023, with all sub-categories remaining flat or recording an increase. Spring’s warmer-than-usual weather lifted spend at department stores (+1.7%) and clothing retailers (0.3%). Household goods benefited in September (+1.5%) from the release of the new iPhone model and the Climate Smart Energy Savers Rebate program in Queensland (which gives consumers cash back for purchasing eligible energy-efficient appliances). Retail sales in September were 2.0% or $0.7 billion higher than September 2022 sales, however analysis continues to suggest that the resilience of retail sales is inflation driven (September 2023 monthly CPI increased to 5.6% year-on-year) and that volumes remain under pressure. The ABS’s recent release of the September 2023 quarter retail sales volume results showed a 0.2% increase in volume for the quarter. This follows three consecutive quarterly declines despite strong population growth and, on a per capita basis, retail sales are down 4.0% from September 2022. These results are in line with patterns seen in recent months, as cost-of-living pressures continue to affect consumers’ spending habits.

Online retail sales

• vs prior month - 2.9%

• vs pcp - 11.0%

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales Index rebounded by 2.9% in September 2023 (seasonally adjusted), following three consecutive months of decline. Sales growth also remains elevated in year-on-year terms (+11.0% vs September 2022), noting there was a period of contraction in the comparative 2022 period. Similar to the ABS retail sales results, ‘home and appliances’ (+3.9%) and ‘department stores’ (+2.9%) experienced increases. ‘Media’ (+9.1%), ‘takeaway food’ (4.4%) and ‘games and toys’ (5.1%) also recorded growth. ‘Fashion’ (-0.5%) continued to contract, albeit at a slower rate than August 2023. This category may rebound in coming months, particularly November 2023, as the Black Friday/Cyber Monday sales weekend appeals to budget-conscious consumers. Online retail sales are estimated to represent 12.8% of retail sales reported by the ABS during the 12 months to September 2023 (totalling $54.17 billion) and just slightly lower (-0.1%) compared to the 12 months to September 2023.