Australia: Retail sales volumes stall despite aggressive price cuts - Westpac

Matthew Hassan, Research Analyst at Westpac, notes that Australia’s real retail sales, i.e. volumes rose slightly, by 0.1%qtr, a touch better than the market expectation of flat result and the 'saving grace' – for consumers at least – is that the fall was all due to a 0.4% decline in retail prices, the biggest quarterly drop since 2004.

Key Quotes

“The storetype breakdown showed decent monthly sales gains for department stores (+2.1%) and food (+0.9%), offset by a hefty fall for ‘other retail’ (–1.7%) and further declines for household goods (–0.4%) and clothing (–0.7%). Much of the slowdown in nominal sales over the last 3mths has been due to a sharp turnaround in household goods retail, from a 1.9%qtr gain in Q2 to a 1.9% contraction in Q3.”

“For retail volumes, solid Q3 gains for food (+0.9%qtr) and clothing (+0.7%qtr) were offset by sizeable falls for household goods (–1.7%qtr) and department stores (–1.4%). The slowdown has been across all states but has been more pronounced outside of NSW.”

“Retail price deflation looks to be firmly entrenched. Basic food retail prices, which had been pushed up by weather events earlier in the year, have moderated with annual inflation in this segment back to 0.6%yr. Non food retail prices are declining at 1.9%yr, a 12yr low. The widespread nature of retail price declines is also striking – 10 of the 14 different storetype and state retail deflators have seen back to back quarterly declines in prices in 2017, the highest proportion since the AUD driven price deflation in 2003.”

“Stepping back, the picture from the report is an unambiguously bad one for retailers – who are cutting prices but finding no traction with volumes. The picture is not quite as bad for consumers who get some advantage from lower prices and do not look to be cutting back on consumption quite as sharply as feared.”

“The wash-up still points to marginal downside risks to the wider consumption estimates in the Q3 national accounts (to be released December 6).”