Is everybody happy with the much-hyped surge in Christmas retailing? Retail sales are apparently well above pre-pandemic levels but there remain some areas where retailer viability in the New Year could be still in question.
Deloitte Access Economics has noted retail spending volumes surged 6.5% over the September quarter, with positive momentum continuing into the December quarter. Retail sales volumes are expected to grow 2.6% over 2020.
Yet, in the researcher’s latest quarterly retail forecasts report, while 39% of retailers expect over 5% growth in Christmas sales a further 24% expect a fall in sales of more than -5%.
The report highlights around 500, mostly small, retailers usually enter external administration by this time every year but there have been far fewer caught in the net in 2020 (around 300), thanks in large part to government support.
Therefore there is heightened risk insolvency catches up with some in the first half of 2021 as fiscal stimulus comes to an end.
Moreover, not all retailers are benefiting: clothing, department stores and cafes are all lagging pre-pandemic levels, compared with expenditure on food and household goods. The Deloitte Access analysis suggests Christmas will be at the least, polarising.
The strong performance of retail is, in part, stemming from a lack of opportunity for expenditure on travel and recreation further afield, as well as the change in consumer preferences towards more home-related goods.
Principal author of the report, David Rumbens, suggests the increase in market share for retail sales is likely to linger as consumer reluctance to travel remains a barrier to spending on transport and accommodation.
Yet, while Christmas is a critical period in any year, those businesses facing significant disruptions to their operating conditions may be at risk, having relied on stimulus measures that are slowly being reduced.
For those that haven’t made the necessary structural adjustments a poor sales performance over Christmas could just be “the straw that breaks the camel’s back”.
Victoria is the only state which has not yet recovered after two quarters of declining retail expenditure volumes, while in NSW retail spending rose 11.6% over the September quarter.
The December quarter will be the first with few restrictions since a second wave of coronavirus began in Victoria, and David Rumbens notes the run into Christmas is looking more positive than previously expected.
The main drivers of a stronger outlook include improved labour market conditions, the extension of JobKeeper for struggling businesses and robust consumer confidence. Amid fewer restrictions, the opening of state borders and the news about vaccines means consumers are now more at ease.
