Analysts claim retail sector is “verging on recession”: Will the tough times ease?

A surprise drop in retail spending for the month of March has lead to doomsday talk from some analysts, who are citing negative growth in the last three months out of four as an indication of a downturn in the sector.

The Australian Bureau of Statistics released its retail spending figures for March yesterday, which revealed a 0.1% drop in retail spending during February.

AAP reports economists had expected a 0.3% rise, leading to Citi Group analysts to issue a note titled: “The retail sector is verging on recession”.

“Retail trade growth has now been negative in three out of the last four months (no growth per month on average), the sector’s worst performance since July to November 2012,” the analysts said.

“Retail sales numbers are now just 2.1 per cent higher than the same level of last year. This is the slowest growth rate in almost four years.”

The ABS data showed spending dropped the most in food retailing (-0.5%), department stores (-0.6%), and household goods (-0.1%).

However, experts believe it’s not all doom and gloom for the retail sector, with retail expert at Retail Oasis Pippa Kulmar labelling Citi Group’s statement as a “bit overblown”.

Thinking of retail as a “mature category”, Kulmar told SmartCompany this morning the drop in spending in March was likely due to unseasonably hot weather and an increase in sales and discounting.

“A factor for a slowing in spending in March has been the unseasonably warm weather we’ve been experiencing, which results in a delay of purchasing in the fashion category,” she says.

“Thanks to this, retailers will have a lot of stock, which leads to increased discounting, which has a deflationary impact on sales.”

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A “tough year” for retail

Australian Retailers Association executive director Russell Zimmerman agrees, telling SmartCompany retail spending has been “very soft” due to consumers “bunkering down and not spending as much”.

“Consumers are looking at what needs to be purchased rather what they want to purchase, and there’s general concern over the economy,” Zimmerman says.

“There’s a general lack of confidence around.”

Kulmar believes a “fundamental shift” in how consumers make purchases means Australian shoppers are looking towards “experiences” rather than tangible goods. Kulmar also believes the ABS data does not accurately capture online sales, believing there may be an increase as more millennials get shopping.

The ABS notes online retail contributed to 3.7% of total retail turnover in March, and experimental estimates show online retailing is up 13.8% from the previous month. This is the largest increase in 2017 so far.

“Retail is at a tipping point and we’re seeing a change in buying habit from consumers as we become a more mature and progressive population,” Kulmar says.

“A drop in traffic to retail stores also means we’re seeing fewer discretionary impulse purchases, as online shopping is often more direct.”

“I think every market goes through periods of change, and right now we’re just looking at the next stage for retail. We’ve got new consumers, and a lot of people who want change.”

Zimmerman also believes the downturn could be attributed to a number of Australian retailers shutting down or otherwise restructuring their businesses, citing failed hardware chain Masters and footwear business Payless Shoes as examples.

“We’ve seen a number of retailers going out of business or restructuring their business after Christmas,” he says.

“It’s been a tough year, so hopefully we’ll see some things out of the budget which could up spending across the nation.”

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