Small businesses defy the sales downturn with 4.7% sales increase

Businesses across Australia are experiencing tough trading times, with the Commonwealth Bank’s Business Sales Indicator recording a 0.4% fall in August. However, small business appears to be recovering, with ANZ’s Small Business Sales Trend report recording a 4.7% increase.

The report found small business sales in August increased by 4.7% relative to a year ago and by 3.2% over the year to the latest three months.

Retail-related small business sales, particularly of non-food items, remained relatively subdued, growing at less than 2% year on year for the three months to August.

But non-retail sectors experienced stronger growth, up 4.2% year on year for the three months to August and 5.4% year on year for the month of August.

Among the non-retail businesses, accommodation and automotives recorded the strongest sales growth.

Looking at a country wide breakdown, sales growth was particularly robust in WA, up 6.5% thanks to sharply higher resources investment and associated flow-on effects.

Sales growth elsewhere remained weaker but was relatively solid in NSW, up 3.6% year on year and in Queensland, up 3.3% year on year.

ANZ senior economist Justin Fabo told SmartCompany the figures were “tentatively positive” but said “things are still soft” in terms of overall sales.

“Small business sales have been quite weak at the earlier part of the year and they have improved since then but they are still running below trend rate,” he says.

“We look at growth in the latest three months because we know there was a lot of money thrown at households in May and June, which can throw the numbers out.”

Fabo says sales are likely to continue to improve for small businesses but the long term forecast is not as strong.

“In the near time, things should improve further but, at the bigger picture level, we see clouds on the horizon as we are not seeing commodity prices rising anymore,” he says.

The rise in small business sales recorded by ANZ contrasts with an overall slump in business sales recorded by the Commonwealth Bank’s Business Sales Indicator which recorded a 0.4% fall in August following a 5.4% decline in July.

The sectors recording declines included airlines, hotels and motels, with spending strongest at wholesale distributors and manufacturers, which are up 26.1%, mail order and telephone order providers, which are up 21.8%, and service providers, which have increased by 17.5%.

Gary McGrath, acting executive general manager for local business banking at the Commonwealth Bank, said the continued slide in spending was indicative of already cautious consumers moving into more conservative territory.

“Even though our economy is in good shape, consumers overall don’t see the need to spend and they aren’t being given any reason to do so, meaning it’s more than likely they will continue to hold on to their money,” said McGrath.

McGrath said businesses need to ensure they are well prepared to continue dealing with a more absent consumer.

“That includes reviewing their business models and focusing on areas like productivity and efficiency to ensure they can control costs and maintain a healthy balance sheet,” he said.

Craig James, chief economist of the Commonwealth Bank’s broking subsidiary CommSec and author of the BSI, said the case for further monetary stimulus had been advanced after the latest disappointing results.

“We are facing a strong uphill battle when it comes to getting consumers back on the spending path,” James said.