The release of Woolworths' sales numbers and the significant downgrading of David Jones' earnings is starting to reveal a pattern in consumer behaviour and provide some forensics around spending patterns of different demographic groups.
The supermarket sales figures from Woolworths tell us a couple of things. The first is that even in a tough retail environment shoppers are still buying groceries - but the make-up of the supermarket trolley is changing.
In the fourth quarter to the end of June this year Woolworths' food and liquor sales were solid. They were not great and a long way from the halcyon days a few years ago. But consumers are responding positively to the lower cost of grocery items.
They are remaining fairly frugal with their choices and tending to increase the proportion of the lower-cost home brand items over the branded products. They are also easing up buying the fresh foods that have increased in price.
Thus Woolworths' supermarket division's performance is more a product of competition with the rising star competitor, Coles.
There is no consumer exodus from supermarkets. The shoppers move between the two major competitors, which gain market share from smaller competitors but suffer some leakage to newish entrants such as Aldi.
The more interesting observation from the Woolworths sales result is how its non-food brands are faring. Despite the fact that we are hearing about immense levels of pain in discretionary retail, the result from Big W was not so bad.
Sales for the quarter were up on a comparable store-by-store basis by 3.3 per cent (after adjusting for the Easter period).
Once again this is not a stellar result, but it is by no means a disaster. The number of items people are buying has not changed significantly - instead, to the extent that there is weakness in overall sales, it is more a reflection of the fact that the items are cheaper.
This suggests that at the bottom end of the market the consumer may be feeling frugal rather than fragile.
It could also mean middle-class shoppers that are staying away from high-end retail are moving to the discount department stores. (This is the same pattern that sees grocery shoppers choosing the cheaper home brand goods.)
This is not to suggest that those at the bottom end of the earnings scale are spending wildly, but perhaps that they are not feeling as insecure as the middle/higher income earners.
There could be a couple of reasons for this. The first is that the wealthier households are feeling more nervous about falling property prices and the sagging stock market.
The concerns of the lower income earners could also be mitigated by numerous government policies that are compensating them for increases in the cost of living.
At the upper end of the scale the government has been eroding their income through additional imposts such as the flood levy, curtailing their level of superannuation contributions, reducing rebates on private health insurance, and the eventual cost of the carbon tax.
All consumers are nervous about future prospects but lower income earners are probably feeling it less.
At the very top of the socio-economic tree all is well. The luxury end of the market is not impacted by much. At David Jones its wealthiest customers are fine - so are those that shop at Louis Vuitton.
The David Jones boss, Paul Zahra, noted last week that it was the aspirational shopper that had deserted his stores. Maybe this consumer has trickled down to Myer, or even Target.
In turn Myer's sales are also down. It could be that its aspirational shopper has also ventured further down the pecking order. This doesn't mean that it's all about the trickle-down. The discount department stores are not now housing a deep pool of discretionary retail demand.
It's just they do not appear to be suffering quite the same sales slump as their upmarket brothers.
Meanwhile the Woolworths consumer electronics brand, Dick Smith, performed in line with others in this category - badly. No amount of rebranding could save this division from a poor performance.
It's a bloodbath out there in this area of retail. While Woolworths boss Michael Luscombe said volumes were good, the price of a TV was 20 per cent less than in the previous corresponding period and computers were down 30 per cent.
This fall in prices is a direct response to competition from online retail - a structural issue that probably won't go away, even when the consumer does open their wallet.
Perhaps the most depressing offering from Luscombe was that he saw no good news on the horizon.
Discounting across the spectrum will continue as consumers show no signs of changing their behaviour.
Frequently Asked Questions about this Article…
What do Woolworths' recent sales numbers reveal about consumer spending and grocery demand?
Woolworths' latest quarterly result (to end of June) showed food and liquor sales were solid — not booming but steady — indicating shoppers are still buying groceries. The data suggest consumers are being frugal: they’re shifting toward lower-cost home‑brand items and buying fewer higher‑priced fresh foods, rather than abandoning supermarkets altogether.
Why are shoppers switching to home‑brand products at supermarkets?
The article notes consumers are responding to lower grocery prices by choosing cheaper home‑brand alternatives over branded products. This reflects cost-conscious behaviour as households try to stretch budgets amid a tough retail environment.
How are discount department stores like Big W holding up compared with upmarket retailers?
Big W’s comparable store sales were up about 3.3% for the quarter (after adjusting for Easter), suggesting discount department stores are faring better than upmarket peers. The piece argues middle‑class shoppers appear to be trading down from high‑end retail to discount stores, so discount retailers aren’t suffering as severe a sales slump as upscale department stores.
What happened to David Jones and the ‘aspirational’ shopper mentioned in the article?
David Jones reported a significant downgrade to earnings and its CEO, Paul Zahra, said the aspirational shopper has deserted its stores. The article suggests these customers may be trickling down to lower‑priced retailers such as Myer or Target, contributing to weaker sales at premium department stores.
How is online competition affecting consumer electronics retailers like Dick Smith?
Woolworths’ consumer electronics arm, Dick Smith, performed poorly — in line with the rest of the category. The article highlights structural price pressure from online retail: TVs were about 20% cheaper than the previous corresponding period and computers were down about 30%, illustrating fierce online competition that’s driving prices down.
Are different income groups behaving differently in the current retail cycle?
Yes. The article suggests lower‑income households may feel less fragile — partly because some government policies are compensating them for the rising cost of living — while middle‑ and higher‑income consumers are more nervous about falling property prices and a weak stock market. At the very top end, luxury spending appears relatively unaffected.
What does continued discounting across retail mean for investors watching the sector?
The article warns that discounting is likely to continue as consumers show little sign of changing behaviour. For investors, that implies ongoing margin pressure for retailers, especially in categories exposed to online competition and price wars. It’s an environment where sales volumes may hold up but average selling prices and margins can be squeezed.
Is there any sign of a broad consumer exodus from supermarkets to new entrants like Aldi?
No broad exodus is evident. The article explains shoppers are largely moving between the two major supermarket chains (Woolworths and Coles), which gain share from smaller competitors but still see some leakage to newer entrants such as Aldi. Overall, supermarkets retain core grocery demand even as buying patterns shift.
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