Older Australians will lead Australia’s retail spending surge: Research

Retail businesses should focus on older, cashed-up demographics in order to take advantage of the forecast increases in discretionary spending over the next few years, two new reports have suggested. 

The advice comes as both the Commonwealth Bank’s Viewpoint report and the latest Access Economics retail forecast indicate spending will be on the rise as the economy continues to recover.

The Viewpoint report has found several key trends over the 12 months, as several demographics reacted in different ways to the financial crisis and increases in unemployment.

• The 25-34 year old demographic recorded the lowest increase in spending, with an average of 2% – below the rate of inflation.
• People aged 35-44 and 45-54 recorded the highest monthly salary payments, and the high monthly expenditure likely due to the larger sizes of their households.
• Young people were more likely to experience unstable employment, with 14.4% of 15-19 year olds unemployment during December 2008, with that increasing to 17.5% in December 2009 – one in every six.
• However, the 18-24 demographic was less likely to be pessimistic about the economy, with only 9% believing the economy would worsen in December – compared to the 16% rate for respondents overall. This is likely due to the fact this demographic has not experienced a recession before.
• The most restrained group was the 24-35 demographic, which is most likely due to their dedication to saving in order to take advantage of the first home owners grant.
• Real income growth for the highest earning demographics, the 35-44 and 45-54 year olds, increased by 2.8% and 3.7% respectively. Income growth for 55-64 year olds grew by 6%.

However, the report also found the older demographics recorded the biggest increases in spending. The 65-74 and 75-80 demographics recorded increases of 28.2% and 46.8% respectively.

While the report stated this is likely due to the increase in the pension starting from September 2009, Retail Doctor chief executive Brian Walker says this trend will continue as the population continues to age and older Australians hold more wealth.

“The Australian population is aging, there is a lot of disposable income in that sector, and although older Australians have been hit by superannuation and so on, they still have a lot of money and this sector is very under-represented in retail.”

Walker says retailers can stand to increase their sales by focusing on older Australians, calling the demographic an entire untapped market.

“There is currently a very strong retail position towards contemporary fashion, with the malls increasingly designed for a younger demographic. Couple that with online retail, and you have a situation where retailers can target more effectively the older segments of the market through particular offers, loyalty programs and merchandise.”

“We’re also living longer, and having more money. Older Australians are also more entrenched in conservative views and while it isn’t sexy retailing, it’s retailing nevertheless, and I think the demographic is very underrepresented and ready to be used.”

Access Economics director David Rumbens also says there is an under-utilised source of revenue for retailers in this market, not so much due to recent spending trends but to the overall aging of the population.

“It doesn’t surprise me that there was a short-term lift in spending rates, but the focus for retailers is not so much in that but in the fact this demographic will increase and it will be important to focus on that group over time.”

“We do know that the older Australians hold the bulk of Australia’s wealth, particularly in housing assets, and that will be good for businesses as the years go on.”

The latest Access Economics retail forecast shows spending is set to increase by a higher than expected rate over the next few years as the economy recovers with strong employment rates.

Retail growth come in at 3.4% for the year ending December 2009, with a rate of 2.6% expected for the current financial year and 2.7% for 2010-11. For 2010-11 a rate of 3.8% is expected, which Rumbens says is below trend but better than the forecaster predicted.

“Retail growth is indeed looking stronger than what we had been thinking over the course of last year. The chief reason for this is that jobs growth has been very strong over the past five months, and fortunately here we didn’t see a big rise in unemployment and that has helped retail sales along and caused us to revise our forecasts.”

“Consumer confidence is also certainly high. We’re not seeing consumers borrowing as much money as they have in the past, so there is some caution there, but they are also looking to pay down levels of debt which is not an unhealthy thing for the economy.”

The report also states that for the five months to January 2010, nearly 200,000 jobs were created with about 50% full-time.

“Not only that, consumer expectations of unemployment have also fallen away, and are now back at pre-GFC levels. A greater sense of job security makes for a more confident consumer – one who is more likely to be spending. Strong jobs growth provides a firm foundation for retail spending to grow over 2010 and 2011,” Rumbens stated in the report.

However, there will be barriers to growth. Rumbens said in the report interest rate rises could hold retailers back, with the RBA expected to raise the official cash rate over the rest of the year.

“With four official rate rises so far demonstrating the confidence the Reserve Bank has in the Australian economic recovery (and the potential inflationary pressures it otherwise sees), those rate rises (and more to come in 2010) will directly eat into incomes, as well as detract from house price growth and consumer confidence.”

While New South Wales, Victoria and the Australian Capital Territory are likely to be affected most by the interest rate rises, Western Australia, Queensland the Northern Territory will likely benefit from higher demand from Asia and large resources projects.