Retail conditions softening meaning a more challenging period ahead for retailers

Consumer sentiment fell by 1.3% in February 2022, as a positive economic outlook and confidence in the labour market was dampened by concerns about the rising cost of living and the prospect of increased inflation rates. Both traditional and online retail sales declined by 4.4% and 4.5% respectively in December 2021, but remain up on historical levels. While retailers benefitted throughout 2021 from government support and the reallocation of consumers’ share of wallet towards tangible goods while other spending options were limited by COVID-19 restrictions, the dampening of consumer sentiment and easing of restrictions signal a more competitive and challenging retail environment in 2022.

Consumer confidence

• 1 month - (1.3%)

• 3 months - (3.4%)

• 12 months - (9.8%)

Source: Westpac – Melbourne Institute Consumer Sentiment Index

National Consumer sentiment fell by 1.3% to 100.8 in February 2022 according to the Westpac survey. The fall in February followed a 2% fall in January and while the index is still in positive territory (narrowly), it is now 15.2% below the peak we saw in April 2021 and almost 8% below February 2021. Despite falling COVID cases and strong labour market conditions, significant pressure on family finances attributable to the rising cost of living and the prospect of increasing interest rates drove down consumer sentiment (finances vs a year ago’ sub-index fell by 9.2%).

Retail sales

• 1 month (4.4%)

• 3 months 7.8%

• 12 months 5.2%

Source: Australian Bureau of Statistics

While the ABS retail sales declined 4.4% on a seasonally adjusted basis in December 2021 compared to November 2021, sales were $2 billion higher in December 2021 than December 2020 (+4.8% vs December 2020, +15.1% vs December 2019). Sales declined in all states apart from the Northern Territory (3.6% increase), with the most significant declines in Victoria (8.4%) and New South Wales (4.2%). Overall, retail sales grew by c.6% in 2021 compared to 2020 and were c.12% above 2019 levels as consumers focused spending on retail with other options severely impacted at certain points during the various lockdowns and other restrictions in place.

Online retail sales

• 1 month - (4.5%)

• 3 months - (14.7%)

• 12 months - 15.3%

Source: NAB Online Retail Sales Index

Online retail sales recorded a similar seasonally adjusted decrease of 4.5% in December 2021, declining for the third consecutive month following a period of strong ‘lockdown enhanced’ growth in the third quarter of 2021. Online sales for the twelve months to December 2021 represented 14.4% of total retail sales during that period, which was 19.9% higher than the previous corresponding period.