Retail recovery underway: Growth above trend as handouts, interest rate cuts flow through to stores

Retailers may be in the midst of the recovery they’ve been hoping for. According to new figures from Deloitte Access Economics, retail sales increased 2.8% during the first half of the year – the best rate seen in the past few years.

Some of the most affected areas, such as department stores and fashion retailers, are among the biggest beneficiaries, according to the new report.

However, there is a caveat – consumers aren’t happy. Shoppers are still pessimistic given the number of risks facing the economy and, according to the report, are essentially “shopping with a frown”.

“Having held off for some time amid economic fears, Australians can hold off no longer and are out there shopping, though somewhat begrudgingly,” it says.

Deloitte Access partner David Rumbens says the savings rate for households has grown to its highest in the past few years. Now, that saving is starting to pay off.

“Other factors include interest 125 basis points of rate cuts, wages growth and handouts from the government,” he says.

“All of this is likely to show some good results in the next couple of months as we get further benefits from the handouts.”

The report points out the 2.8% rate seen in the first six months of the year is an “uncommon rate of growth”, and puts growth over the year at 3.9%. That’s above the 10-year average rate.

The growth has been spread across a number of sectors. The biggest gains have been seen in department stores, up 5.5% and clothing retailers, up 6.1%.

“Food retailing is still doing quite well, and cafes and restaurants are growing,” says Rumbens.

“The other retailing category doing well includes chemists, and also online retail which is continuing to grow strongly.”

The only sector not doing so well is the household goods industry, which is underperforming as the property industry continues to falter.

Food retailing is forecast to grow 3%, department stores by 3.8%, and clothing and footwear by 5%. Household goods retailing will grow just 2.4%, although this figure is expected to move to 5.2% in 2013-14.

These sectors still face significant risks, though, especially as cash handouts dissipate. In particular, household goods may not see a recovery until 2013 alongside housing, while cafes and restaurants face higher labour costs.

Given such positive factors driving retail sales, the report predicts the positive results will last for at least a little while longer, given population growth, ties to China, the household savings rate and price deflation.

However, risks still remain, and the report says broader support for the retail industry is still only modest.

“Employment growth may do a little better over the next year, but any jobs recovery is likely to be somewhat muted, while real wage growth may moderate as inflation picks up.”

While growth is expected to reach a record 3.4% this year, that may drop to 2.7% in 2013-14. Also, despite more interesting investment and house prices, “any wealth gains may be treated somewhat cautiously be consumers”.

“Jobs growth is weak,” Rumbens says. “And house price growth has been in a trough.”