Retail in a lumpy recovery
The end-of-season sales and heavy discounting appear to be working in some areas, with consumers spending more than saving.
The opening of more international labels and a revamp of some stores in parts of Melbourne's central business district will make the sector more attractive to shoppers.
The rise in demand for electronics - tablets and phones - has created a new class of tenants and agents are now scouring all capital cities for new stores for Sony, Apple and Samsung, as well as the traditional carriers, Vodaphone and Telstra.
According to the latest Commonwealth Bank business sales indicator, economy-wide spending grew by 1 per cent in trend terms in May, after a 1.2 per cent lift in April and a 1.1 per cent gain in March.
The chief economist at CommSec, Craig James, said retailers had reason to be more confident, and despite the recent fall in the Aussie dollar, it was still a case of keeping prices lower to attract customers and prevent them flocking to overseas websites.
"The economy is improving off a low base. However, the recovery is still fragile," he said.
"An ongoing improvement in confidence is necessary to support activity levels, and the perception of lower interest rates will certainly support sentiment."
According to retail stock analysts at Deutsche Bank, while there has clearly been some deterioration in consumer sentiment since earlier in the calendar year, they believe this has been overstated given the weather-related drag on apparel sales (notably non-weather-affected categories have been better).
"The May federal budget announcement also weighed on sentiment and while conditions are likely to remain lumpy, we expect a gradual improvement given the positive signs in the property market and the recent interest rate cuts," the analysts said.
In the Australia retail marketview from CBRE for the first quarter of 2013, it says a more stable economic outlook was helping to boost consumer spending levels, driving modest growth in the retail market as a result.
The report says that despite subdued rental growth in the first three months of the year nationally, sales and investment activity was heightened during the period - particularly in the eastern states.
In turn, this is driving up demand for the bricks-and-mortar shopping centres.
Frequently Asked Questions about this Article…
A 'lumpy recovery' means the retail sector is improving but unevenly — activity is up from a low base, yet the rebound is fragile. Analysts say confidence must keep improving for growth to stick, and investors should expect gradual, inconsistent gains rather than a smooth upswing.
Economy-wide spending has been rising: the Commonwealth Bank business sales indicator showed trend growth of 1.1% in March, 1.2% in April and 1.0% in May. That suggests consumers are spending more, which supports retail sales momentum.
Yes. Rising demand for tablets and phones has created a new class of tenants, with agents looking for new stores for brands such as Sony, Apple and Samsung as well as carriers like Vodafone and Telstra — boosting foot traffic in retail precincts.
The opening of more international labels and revamps of stores — notably in parts of Melbourne’s CBD — are making retail precincts more attractive to shoppers, which can help lift sales and property demand in those areas.
Deutsche Bank analysts say the drop in consumer sentiment has been overstated because weather-related weakness hit apparel sales. Non-weather-affected categories performed better, and other factors like the federal budget also weighed on sentiment.
Analysts expect recent interest rate cuts and positive signs in the property market to support a gradual improvement in retail conditions. The perception of lower interest rates can boost consumer and investor confidence, helping retail activity.
Online competition is a concern; retailers are keeping prices lower to discourage customers from buying from overseas websites, especially after a recent fall in the Australian dollar. At the same time, demand for physical stores remains strong in some areas.
CBRE's retail marketview for Q1 2013 notes a more stable economic outlook is modestly boosting consumer spending, driving retail market growth. While national rental growth was subdued early in the year, heightened sales and investment — particularly in eastern states — are increasing demand for bricks-and-mortar shopping centres.
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