Access Economics’ (AE) latest Australian Retail Forecasts report indicates a tough time ahead for Australian retailers. While low interest rates, stimulus cash handouts and heavy discounting by retailers has generated a recent boost in sales, unemployment and overall economic uncertainty lingers in the forefront of the minds of consumers- providing shaky ground for the retail sector to recover.
 
Although consumer sentiment is on the rise, according to AE, as unemployment continues to rise and cash handouts disappear with the Federal Government directing Budget funding toward infrastructure, suggests that low interest rates will soon be the main policy factor defending retailers against the recession. 

What happens when the cash handouts run out? 
Looking back, December 2008 saw sales surge as the first set of stimulus handouts were distributed. Much of the reaped rewards from this initial cash injection remained locked in through January and February before another sales surge in March when cash from the second stimulus package was starting to be distributed.

The good news is that the cash handouts and interest rate reductions have delivered retailers around an extra $2.2 billion over this period – which most would agree is an extremely significant boost and one which has seen annual retail growth shift up from its low point. 

AE estimates (this can be seen in Chart 3) that a further period of retail sales growth will be experienced in the June quarter of 2009 due to the trickledown effect of the second stimulus package that was distributed in April. 

However, further than June retail sales growth is expected to decline until the end of 2010. The continuing decrease is predicted to be driven by the anticipated significant job losses in the next two years.

Unemployment woes 

As reported by www.connectedaustralia.com, latest unemployment figures (May 2009) show a 0.2% increase from April to 5.7%; that take the official number up to 654,900 jobless Australians. AE estimates an additional 400,000 could be added to that figure over the next two years. These figures will be a major influence on retail spending over the coming 12-18 months. 

AE forecasts that Australian households will retract on their spending through the rest of 2009 and all of 2010. Yet on a brighter note, a strong retail recovery is possible in 2011 as the unemployment rate is predicted to peak and start to turn down, interest rates should remain low and a strong housing recovery emerges.

Access Economics forecasts real (inflation-adjusted) retail sales to grow by 1.3% 2008-09, followed by a fall in sales of 0.3% in 2009-10, and with sales growing by just 0.1% in 2010-11. A strong recovery then emerges in 2011-12, with retail sales projected to grow by 4.3% in that year. 

The key message in the report is that the next 18 months may see a flat to negative real retail sales profile. AE says that retailers should be prepared for a few false starts to a global recovery and the effects this may have on domestic confidence levels – particularly as unemployment levels continue to rise. 

“A key message coming now is that this will be a protracted economic downturn – not only based on Access Economics’ forecasts but also from central agencies like Federal Treasury and the International Monetary Fund. For retailers that may well mean a longer time until a healthy rate of sales growth resumes (compared with previous economic downturns), with a far more cautious approach to spending being adopted by consumers. That’s not good news for those selling at the discretionary end of the spectrum, relying on shoppers to have a sense of adventure,” the report stated. 

Household goods sector worst hit 
The report indicates that the household good retail sector has been the worst hit so far. Sales growth over the year to March 2009 was -1.2% in what AE calls “real terms”. AE analysts anticipate that durable goods spending will be one of the worst hit areas as households tighten the family budget, putting off alterations to the family home and retail purchases associated with this.

However, in the long term analysts indicate that the drop in household goods spending at present could indicate that retailers in this sector may be the first to see sales recover in a very significant way.
“We see a housing led recovery in Australia given the under supply of homes and very low interest rates, but this is more likely to occur from around 2010-11. That means the short term sales outlook remains somewhat bleak.”