Deloitte Access Economics Retail Forecasts: Christmas 2020
Deloitte Access Economics Retail Forecasts: Bounding into Christmas for many, but viability still at stake for some retailers.
After a significant drop in spending in the June quarter, the September quarter rebound has more than made up for it – with retail sales sitting well above pre-COVID levels.
15 DECEMBER 2020: After a significant drop in spending in the June quarter, the September quarter rebound has more than made up for it – with retail sales sitting well above pre-COVID levels.
But not everyone is benefiting – with the clothing, café and department store segments all lagging – and for some of those retailers who miss out this Christmas, there is a risk it could be time to close up shop in the new year as headwinds start to weigh on spending in 2021.
- According to Deloitte Access Economics’ latest quarterly Retail Forecasts subscriber report (Q4 2020):Retail spending has weathered the COVID-19 storm remarkably well, with volumes surging 6.5% over the September quarter
- This positive momentum has continued into the December quarter, with retail sales volumes expected to grow 2.6% in the 2020 calendar year
- Deloitte’s recent Retailers’ Christmas Survey indicated a clear polarisation in Christmas spend expectations, with a record number of retailers expecting sales above 5%, tempered by a substantial number expecting sales to fall by more than 5%
- Normally 500 (mostly small) retailers enter external administration by this time every year. There have been far fewer retialers failing in 2020, with a risk of an insolvency catch-up in the first half of 2021 as fiscal stimulus and various support measures come to an end.
Chart 1 – Nominal and real Australian retail turnover
Deloitte Access Economics partner, and Retail Forecasts principal author, David Rumbens, said: “Retail spending has been an area of strength for the Australian economy through COVID-19. With social restrictions easing, and a measure of pent up demand unleashed, retailers experienced a surge in spending volumes over the September quarter.
“Retail’s strong performance is due in part to opportunity – consumers aren’t able to spend as much on travel and other services – as well as changing preferences – consumers are spending more on home-centric goods.
“So retailers are capturing a greater share of consumer wallet. While overall household spending is still down compared to pre-COVID levels, retail sales have surged ahead. And this increase in market share is likely to linger for some time as restrictions, and consumer reluctance, for travel remain a barrier to spending on transport and accommodation.”
A good run into Christmas
Victoria is the only state that has not recovered yet after two quarters of decline in retail spending volumes – in contrast to New South Wales, where retail spending surged 11.6% over the September quarter.
“The double-digit gains in New South Wales could be a good sign for Victorian retailers heading into Christmas,” Rumbens said.
“The December quarter will be the first with limited restrictions since the second wave crisis began in Victoria, and pent up demand was already starting to lift spending through the month of October.
“Indeed, the run into Christmas is looking more positive than previously expected. There are three key drivers of this stronger outlook: improved labour market conditions; the extension of JobKeeper for struggling businesses; and upbeat consumer confidence. Combined with good news on fewer restrictions, state borders opening up, and vaccines, this has enabled consumers to feel more at ease with spending heading into December.“
But there is a risk it could be the last season of goodwill for many retailers
“But not all retailers are benefiting from the boom in spending,” Rumbens said. “While spending on food and household goods are well above pre-COVID levels, clothing, department stores and cafes are all lagging.
“Our recent Retailers’ Christmas Survey indicated this year’s Christmas trading period would be a polarised one. While 39% of retailers expect over 5% growth in Christmas sales, up from 21% in 2019, a further 24% expect a fall in sales of over 5%.
“Despite the difficult conditions for many retailers, the number of insolvencies in the sector has actually dropped significantly in 2020 so far. In 2019, nearly 500 retailers entered external administration by October, while in 2020 this dropped to around 300.
“This suggests that if 2020 were similar to last year, an additional 200 retailers (on top of the existing 300) would likely have entered external administration by now, and a further 150 would do so before the end of the year.
“The Christmas period is critical in any year, but for businesses facing significant disruption to operating conditions, who relied on stimulus measures that are slowly fading and who haven’t made necessary structural adjustments, there is a risk that a poor sales performance could be the straw that breaks the camel’s back.”
See more Deloitte research at deloitte.com.au
