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Access Economics Retail Forecasts: Food Retail Recovery

Retailers face slow recovery: Report

By Michelle Hammond
Wednesday, 09 March 2011

Retail sales are expected to continue to track slowly in the first half of 2011 but businesses can anticipate better conditions from mid-2011 onwards, according to the latest Access Economics retail forecast.


The report, titled Retail Forecasts February 2011, says the recent surge in Australians’ incomes and low unemployment rates could help to loosen consumers’ purse strings later in the year.


“By the end of 2011, we expect to see retail sales tracking at a rate of 3% sales growth – still not great by historic standards but far more buoyant than the current retail environment,” the report says.


In terms of individual sectors, Access Economics partner David Rumbens says clothing, footwear and personal accessory sales suffered in the second half of 2010, partly due to unpredictable weather.


“A more normal change of seasons in terms of weather may produce better clothing sales results in Autumn, and we expect further improvement in 2011 to 2012 as discretionary spending picks up,” he says.


Rumbens says household goods retailing may be an emerging “good news story” for the retail sector, with sales rising by 3.1% during the December quarter, which could be an indication of a stronger sales performance through 2011-12.


Other retailers, including newsagents, chemists and discretionary sales retailers – such as toy and sporting goods retailers, and jewellers – are also travelling reasonably well, although Rumbens says, “we would expect a switch of sales growth into the more discretionary end of this group”.


Meanwhile, the report reveals cafes, restaurants and takeaway food have had a strong run over the past couple of years, notably expanding their share of the consumer spend.


“However, by the end of 2010, that trend appeared to have well and truly evaporated and a period of consolidation now beckons,” the report says.


“Rising wage growth will also keep price growth for the café sector at a reasonably solid clip, while pressure on tourism as a result of natural disasters and the high Australian dollar may also keep an important revenue stream subdued.”


“We expect little growth in café and restaurant spending in the year ahead, before better results from 2012-13 onwards.”


The report reveals food retail also continues to endure a “horror patch”, with retail sales falling by 1.1% over the year to December 2010.


“Unlike much of the rest of retail, which is seeing price deflation, food retail price growth has remained reasonably solid over the past year, which is helping to limit volume growth,” the report says.


“Within the sector, sales from liquor stores performed reasonably well over 2010, supermarket sales were pretty much standing still in real terms, while it was specialised food retailers who have really taken a bath.”


The report states that while spending on food retail is overdue for a return to stronger levels, it may continue to face some short-term challenges.


“A spike in fruit and vegetable prices stemming from the recent floods and Cyclone Yasi will be challenging for consumers to digest,” the report says.


“We expect food prices to rise by 2.3% in the March quarter, which cuts into potential purchasing power elsewhere. The good news is that price spike should unwind fairly quickly – within six months or so – giving food retail a decent chance to then see recovery.”

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