Consumers becoming more selective with their spending

Consumers are bypassing the shops in favour of big ticket items like cars and holidays, according to new Commonwealth Bank research.

CBA economist James McIntyre told the Australian Financial Review that consumers haven’t slowed spending, as retail sales only account for about a third of consumer outlay.

He says the non-retail components of household spending were actually growing rapidly, a statement backed up by a recent Westpac bulletin.

McIntyre says consumers were simply being selective rather than cautious.

“Far from hunkering down to squirrel away increases in household incomes as per the caution theme, consumers are out purchasing big ticket items and checking out major events,” he says.

“Clearly there is a mismatch between total spending and spending at the retail level.”

The rise in household spending appears to have concerned local retailers, who last month pleaded with the Reserve Bank to leave official interest rates on hold for the rest of the year “to give Christmas a chance”.

National Retail Association executive director Gary Black says it’s critical the Reserve Bank considers the impact of a further rate rise.

“Our economy is predominantly a service economy and employment in Australia is predominantly driven by the services sector,” he says.

“This has been a particularly difficult trading year and certainly spending in retail is not reaching the levels that most retailers had anticipated.”

Mr Black also says the slump in retail sales can also be attributed to the ever-growing online shopping trend.

“There’s a general expectation in retail that online retailing will become a stronger force.”

Technology research group Forrester estimates online retail sales will hit $28 billion this year, up 17.5 % from last year.

Despite the findings, Mr Black says he is not overly concerned by the popularity of online retail.

“The bricks-and-mortar retailers are offering much greater certainty in terms of warranty and return policy – there are still a lot of advantages with traditional retailing in Australia.”