Retail Forecasts Bright entry to 2021 - Shop! ANZ

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Retail Forecasts Bright entry to 2021 - Shop! ANZ
Retail Forecasts
Bright entry to 2021
February 2021
Retail Forecasts is produced quarterly and
    provides analysis of current retail spending
    and important changes to the economic
    drivers that influences this. It includes ten-
    year forecasts of retail sales by major
    category and of key economic drivers. The
    supplementary        Detailed       Consumer
    Spending data provides ten-year forecasts
    of detailed Household Final Consumption
    Expenditure categories and detailed Retail
    Sales categories

    EMBARGO 18 MARCH 2021

1
Contents
Listing of tables and charts                           3
Executive summary                                      5
Economic headlines                                     8
Retail category forecasts                             13
Special feature: The winners and losers of COVID-19   20
Forecast tables                                       26
Our retail forecasting and analysis capabilities      29
Our publications                                      32
Listing of tables and charts
List of charts
Chart   1: Nominal and real Australian retail turnover ............................................................... 5
Chart   2: Retail monthly turnover growth (nominal) .............................................................. 11
Chart   3: Retail quarterly turnover growth (real) ................................................................... 11
Chart   4: Food and non-food retailing .................................................................................. 13
Chart   5: Supermarket, specialty and catered food retailing ................................................... 13
Chart   6: Apparel and household goods ............................................................................... 15
Chart   7: Department and other retailing ............................................................................. 15
Chart   8: Real retail turnover per capita, by category ............................................................ 17
Chart   9: Spending as a share of real household disposable income......................................... 20
Chart   10: Spending as a share of real household consumption ............................................... 21
Chart   11: Contributions to retail spending growth, 2020 ....................................................... 22
Chart   12: Retail spending as a share of real household consumption ...................................... 22
Chart   13: Share of 2020 retail spend at risk, by category ..................................................... 23
Chart   14: Retail spending as a share of real household consumption ...................................... 23
Chart   15: Retail spending as a share of real household consumption, by category .................... 24

List of tables
Table 1: Retail sales forecasts by category: volume, price and value ....................................... 26
Table 2: Retail turnover growth, by State............................................................................. 27
Executive summary

4
Executive summary
Retail spending has been one of the bright spots in an otherwise difficult year for the
Australian economy. Despite the deep recession brought on by COVID restrictions, retail
spending actually managed to grow over the calendar year. Much of that was due to the
fact that there wasn’t much else that households could spend on, especially with both
international and interstate travel off the cards. And while 2021 is shaping up as an
economic recovery year, for those retailers that were ahead of the pack in 2020, a
transition back to more normal spending behaviour could mean that 2020’s windfalls were
temporary.

National retail turnover outlook
The retail sector has tackled the COVID-19 crisis and come out on top. Retail spending recovered
strongly in the second half of 2020, more than offsetting the slump in June, to end 6.4% higher in
the year to December 2020. And this strong recovery was experienced across much of the sector,
with all broad segments of spend (barring café and restaurant spending) posting year-to
gains in the December quarter. Though it was non-food spending that led the way, sitting 11.8%
higher in the year to December 2020 compared to a 1.7% rise in food spending. Easing restrictions
(particularly in Victoria) and booming confidence were key ingredients for this rapid recovery through
the December quarter.

Chart 1: Nominal and real Australian retail turnover

12%      Year-to % change                                                    Forecast
10%

    8%

    6%

    4%

    2%

    0%

-2%         Nominal retail turnover - Aust
            Real retail turnover - Aust
-4%
  Dec-10          Dec-12        Dec-14         Dec-16   Dec-18   Dec-20       Dec-22      Dec-24

Source: ABS Cat 8501.0, Deloitte Access Economics

A big driver of the strong performance in 2020 was retail’s ability to remain open to trade.
Households benefited from substantial fiscal stimulus payments, and with limited options available
to spend this income on, a large chunk of income was shifted to savings. But with many retailers
still able to operate and online retailing providing a key channel to consumers, retail goods were an
appealing buy for consumers stuck at home.

There are some challenges ahead. The fiscal stimulus tap has been turned down to a drip
meaning less money for households to spend. Luckily, they are more likely to feel like spending it
given the good news on vaccines and limited restrictions across activities. Unfortunately for retailers,
this also means more opportunities for non-retail spending with spending shifting back
towards travel and hospitality over 2021.

5
The economic recovery and re-opening of industries is more likely a headwind than a boon for many
retailers in 2021. Those big winners in 2020 are likely to face higher risks in 2021 as the
share of wallet starts to normalise back to pre-COVID levels. Where household goods retailing has
been a star performer, the sector faces slower growth ahead. This is likely to weigh on non-food
spending, which is forecast to sit 4.1% lower in the year to December 2021. Meanwhile, the recovery
in hospitality is likely to support another strong year for food spending, ending 3.1% higher in the
year to December 2021.

Because of these challenges, retail spending is expected to track steady over the course of
2021. Consumers’ war chest of savings will provide plenty of ammunition even in the face of
declining fiscal support, but retailers will struggle to hang on to the market share gains they enjoyed
in 2020. Overall, spending is forecast to slow in the second half of the year, ending 0.4% lower in
the year to December 2021. In aggregate, this is a consolidation of the strong spending growth seen
over the year to December 2020.

Key changes since last issue
The economic recovery path is stronger than previously expected, and much of this is due to the
positive news on the vaccine front. But while that is great for underlying drivers of household
income, it also means more competition for consumers’ wallets. This is likely to result in a quicker
path to pre-COVID spending patterns than previously expected.

Overall, our retail sales forecast for 2021 have been revised slightly higher, down 0.4% in the year
to December compared to the previous forecast of a 0.5% decline. However, growth from 2022
through to 2024 is expected to be slower as the transition back to pre-COVID spending behaviours
takes some steam out of the retail run.

6
Economic
headlines
7
Economic headlines
Macroeconomic environment
The global economy is emerging from a severe economic downturn, and for many countries there is
still a long path ahead to pre-COVID levels of activity. Global economic activity is estimated to have
fallen 3.5% in 2020. But fiscal and monetary stimulus has been implemented, and a rebound in
2021 is expected as the vaccine is rolled out. Not all countries face the same path, with those
countries where the virus has spread most – India, Spain, the United Kingdom, France, Italy,
Germany, Japan, and the United States – facing a much deeper downturn and longer road to
recovery.

The Australian economy entered a record economic downturn in 2020 (though modest by global
comparisons) but has also engineered a rapid economic recovery. GDP fell 1.1% in the year to
December 2020, driven by a 2.7% decline in consumer spending over the same period. But there is
good news heading into 2021, with solid expansion through the December quarter as easing
restrictions and good news on the vaccine front bolstered consumer and business
confidence. There will likely be hiccups along the way, but growth in 2021 is looking positive.

Business confidence is at record highs which bodes well for jobs and investment activity. The NAB
business confidence index reached its highest level in over two years in December of 2020 and
remains well above long-term averages into the beginning of 2021. This rise in confidence is
expected to further support the recovery in the economy, as businesses continue to hire new
staff and increase their investment in non-human capital.

Furthermore, Australian CFOs (surveyed through Deloitte’s Bi-Annual CFO Sentiment Survey) had a
record turnaround in confidence levels. As we begin a new year more than 70% of CFOs are feeling
optimistic, or even highly optimistic, about the financial prospects of their companies, and more than
half are even willing to take more risk onto their balance sheets. But they also appreciate that
challenges remain, particularly as COVID restrictions such as border closures impact some sectors
more than others.

The Australian Government has taken a front seat in supporting the economic recovery through
2021, but this is rolling back as economic activity improves. At its peak, general government
consumption accounted for 22% of nominal GDP. This reflects the massive spending efforts the
government put in place to keep the economy going. A large contributing factor to this was the
COVID support payments which are set to end in March 2021. In total, more than $167bn will have
been paid out, including $36bn in early super withdrawals, $21bn from the Coronavirus supplement
and $88bn in JobKeeper payments. The removal of these programs will result in a reduction of
more than $5bn less in government support flowing through the economy each month (a
touch over 3.0% of GDP). Moving forward, the Government’s share of nominal GDP is expected to
gradually wind down, but it will likely remain above historical averages for some time.

Businesses and consumers have also benefited from record low interest rates, which is keeping a lid
on borrowing costs. The RBA cut interest rates to a record low 0.1% in November 2020 and continued
quantitative easing measures to support liquidity within the market. In addition, the central bank
has indicated that interest rates are likely to remain at low levels for at least three years until the
unemployment rate falls below 6.0%.

Household buying power
A powerful recovery is underway in the labour market, but there is still a fair way to go. Nine out of
ten jobs lost through the pandemic had returned by the end of 2020 as restrictions eased and
economic momentum picked up. And while jobs growth continued into 2021, the number of hours
worked has slowed. December 2020 was only about 1.5% or 25 million hours lower that pre-
pandemic. But as some jobs dropped off following the holiday shopping period, monthly hours
worked in January plummeted to 6.2% or 110 million hours lower than pre-pandemic.

8
The unemployment rate has continued to fall, and broader measures of capacity in the labour market
are also tightening. The unemployment rate sat at 6.4% in January, which is the lowest level since
the beginning of the pandemic. This is a remarkable result given the participation rate is now higher
than pre-COVID levels. Furthermore, the underemployment rate also fell through December
and January, bringing the measure below what was seen in January of 2020. However,
there is still some way to go to reach pre-COVID levels of headline unemployment of sub-5%, with
the unemployment rate not expected to fall back to the low 5%s until 2023-24.

There are some risks for employment as JobKeeper ends, especially for the industries still facing
significant impediments to their operations. In particular, the lack of international tourists has
smashed the sectors that rely on them most. Nearly a third of all workers in arts and recreation
are still receiving JobKeeper, while the same is true for one in five accommodation and
food service workers. These sectors may experience a sharp rise in unemployment as JobKeeper
unwinds at the end of March.

Although the labour market has begun to recover, there is no sign of wages following suit any time
soon. Pre-COVID, wages were growing at a little bit over 2.0% annually. And, by no means, is this
an impressive figure, as wage growth was almost double this leading into the 2008 financial crisis.
By the end of 2020, wages were up just 1.4% over the year. December did experience a strong
quarterly rebound from the weakness experienced through June and September. But wage growth
is not expected to return to pre-COVID levels until the end of 2025.

Consumer confidence has been bolstered by good news on the vaccine front and a strong labour
market recovery than expected. The ANZ Roy Morgan Consumer Confidence Index has increased
from an April 2020 low of 79.8 to 109.6 in January 2021 – above the pre-COVID peak in February
2020. The lockdowns in Queensland, New South Wales, Victoria and Western Australia and the
looming withdrawal of COVID support payments poses some risk to confidence in the coming
months.

Improved confidence has led to a drop in household savings. The household savings rate peaked at
22.0% in the June quarter as consumer spending slumped and incomes rose. The drop in spending
was mostly driven by a reduced ability to consume during COVID-19 lockdowns as well as
precautionary savings amid the uncertain economic outlook. With restrictions easing and confidence
improving, the savings rate has fallen to 12.0% in the December quarter.

The housing market is booming on the back of low rates and strong confidence. House
prices have risen across all major cities and regional areas in the three months to January 2021. On
a national level, house prices rose by 2.8% over the period, while the combined regions and capitals
grew 4.7% and 2.2% respectively. And building activity is also on the up, with housing approvals
continuing their strong run into the end of 2020. The total number of dwelling units approved in
December was just under 20,000, which was an increase of 10% against November and a 23%
increase against December 2019.

Population growth remains constrained by border restrictions, which is also disrupting the flow of
people across the nation. The size of Australia’s population is expected to be 667,000 smaller by
FY25 than the pre-COVID trajectory suggested it would reach, predominantly driven by weaker net
overseas migration. Movement restrictions, state border closures and changing work models have
also impacted on the movement of people throughout Australia. This has been most notable in
Sydney and Melbourne, with net outflows in the past 12 months to the regions increasing.

Total consumer spending has been slammed in 2020 as households were both unable and unwilling
to spend. But as restrictions ease and confidence strengthens, spending activity has rebounded.
Household consumption was up 4.3% over the December quarter, following September’s 7.9% rise.
Looking forward, total household spending is expected to reach pre-COVID levels by the end of
2021.

9
Retail headlines
Retailers have experienced a surge in spending over 2020. Overall, retail trade volumes are up
6.4% and the value of spend was up 10.0% in the year to December 2020. This is the
strongest rate of growth of sales values since 2007. Fiscal stimulus and lower interest rates
supported household disposable incomes, and with limited ability to spend elsewhere, consumers
splurged on retail goods.

Not all retailers benefited from the surge in sales. Even after softening in the final quarter of the
year, home related spending remains well above pre-COVID levels as people spend more
time at home. And while spending on eating out has picked up, it is the only category of spend still
below pre-COVID figures.

Retail spending ended the year strongly. Total retail spending volumes were up 2.5% over the
December quarter, and 6.4% compared to the same period in 2019. Many of the strong
performing states in September experienced a pull back over December, including NSW
where restrictions also limited spending opportunities. However, all state and territories recorded
retail spending above pre-COVID levels. The star performer for the quarter was Victoria, which
released substantial pent up demand over the quarter as restrictions eased.

Retail spending momentum continued heading into 2021, with retail spending values up 0.5%
over the month of January 2021. On the back of localised restrictions food spending values led the
charge rising 1.6%, while these restrictions hampered clothing, department stores and café
spending, which all fell through January. Overall, spending values remain 10.6% higher than the
same period a year before.

Retail prices have eased over the last half of 2020 after supply chain disruptions and increased
demand resulted in strong quarterly retail inflation. Household goods and food retailing drove price
rises early in the year, as grocery shelves emptied, and overseas supply chains left retailers out of
stock. As these issues have been resolved and demand for these segments of retailing slowed, prices
have decelerated, remaining flat over the quarter. Weaker segments of retail such as clothing and
café spending added further downward pressure on prices.

Looking forward, retail spending is expected to moderate through 2021. Reduced income support
measures and a shift back towards pre-COVID spending behaviour is expected to detract from
growth in 2021. But with consumers feeling more comfortable about opening the purse
strings and some segments of travel still facing restrictions, there is unlikely to be a sharp decline
in spending. Overall, retail spending is expected to contract 0.4% in the year to December 2021
before growing to 0.6% in the year to December 2022.

Some retailers have benefitted more than others when it comes to shifts in spending behaviours,
but this is all up for grabs in 2021 as restrictions ease and consumers face weaker income growth.
Indeed, a return to normal poses a bigger risk to some retailers who have picked up their
share of wallet over the past year. This includes household goods retailing, where the durability
and one-off nature of the purchase increases the risk of a sharper pull back in spending.

Some retailers have managed to improve profitability during this period, but as many of the support
measures roll-back, there is a risk that profitability will take a hit and insolvencies may rise. Company
profits surged through the June and September quarters, due in part to JobKeeper subsidising wage
bills and the ability of many retailers to reduce their rental bills. There are only 8.1% of retail
employees still relying on JobKeeper at the end of December, but some of these businesses
may not be able to continue operating without this support. With insolvencies over the December
quarter still only half of what occurred in December 2019, there could be a bounce back through
2021 as zombie retailers start to face the harsh reality of a post-COVID support world.

10
Chart 2: Retail monthly turnover growth    Chart 3: Retail quarterly turnover growth
 (nominal)                                  (real)
     20.0%    Monthly % change, nominal       Quarterly % change, real retail turnover
                                             8.0%                               Forecast
     15.0%

     10.0%                                   6.0%

     5.0%                                    4.0%

     0.0%
                                             2.0%
     -5.0%
                                             0.0%
 -10.0%
                                            -2.0%
 -15.0%
                                            -4.0%
 -20.0%

                                                                       Dec-21
                                                     Dec-19

                                                              Dec-20

                                                                                   Dec-22

                                                                                            Dec-23
             Jun-20
              Jul-20
             Apr-20

             Nov-20
             Feb-20
             Mar-20
             Jan-20

             Aug-20
             Sep-20
             Dec-19

             May-20

             Oct-20

             Dec-20

Source: ABS Cat 8501.0                     Source: ABS Cat 8501.0, Deloitte Access Economics

11
Retail category
forecasts
12
Retail category forecasts
Rapidly changing consumer behaviour through the COVID-19 crisis created a divergence
across retail spending over the year. Overall, household goods and specialty food and
liquor retailing were the standout categories in 2020. In comparison, supermarkets and
catered food are expected to lead the retail pack in the year to December 2021. But the
path is not set in stone as performance will be influenced by changes in the COVID
environment and the effectiveness of Australia’s vaccine rollout as restrictions are eased
across the country. Come the latrer part of 2021 performance between the retail
categories is expected to somewhat converge.

Chart 4: Food and non-food retailing                Chart 5: Supermarket, specialty and
                                                    catered food retailing
   Year-to % change, real retail turnover                   Year-to % change, real retail turnover
14%                                                   50%
                            Forecast                                                       Forecast
12%                                                   40%
10%                                                   30%
 8%
                                                      20%
 6%
 4%                                                   10%
 2%                                                    0%
 0%                                                  -10%
-2%
                                                     -20%
-4%
                                                     -30%
-6%
-8%                                                  -40%
  Dec-15 Dec-17 Dec-19 Dec-21                           Dec-15 Dec-17 Dec-19 Dec-21
                                                                          Supermarket
            Total food          Total non-food                            Specialty and liquor
                                                                          Catered food
Source: ABS Cat 8501.0, Deloitte Access Economics   Source: ABS Cat 8501.0, Deloitte Access Economics

Supermarket retailing
Supermarket retail spending volumes grew 4.0% in the 2020 calendar year. But to provide this
number as a standalone could be misleading as changing consumer habits driven by lockdown
restrictions created significant month to month volatility in spending during 2020. Most notably the
stockpiling behaviour that resulted in a spike in nominal spending in March was quickly followed by
a slump in April. Further regional lockdowns created mini versions of this behaviour.

Supermarket spending ended the year on a softer note as restrictions eased and spending
behaviours normalised. Supermarket sales fell 2.7% in the December quarter, but remained 3.3%
higher compared to the previous year. This was likely driven by a further easing of internal
restrictions across the nation, allowing Australians to resume behaviours that consumer used to take
for granted.

When diving deeper into shopper baskets over 2020 it becomes a story of perishable vs non-
perishable goods. When the stockpiling took control in March, non-perishable goods (those with a
long shelf life) found their way into shoppers’ baskets at a much faster rate than perishable products.
This divergence moderated over the year as consumer behaviours adjusted to a post-COVID world.
Come the end of the year the total sales value of perishable goods and non-perishable goods had
risen 9.7% and 7.6% respectively compared to 2019.

13
Supermarket spending continued a solid run into 2021, with spending values up 1.3% over the
month of January. Temporary lockdown measures across the country have created some uncertainty
for consumers, supporting supermarket spending.

Supermarket sale volumes are expected to kick off 2021 in strong shape before moderating in the
latter half of the year as restrictions continue to ease and consumers revert to pre-COVID spending
behaviours. Overall, supermarket spending is forecast to rise 6.0% over the year to December 2021,
making it the best performer in the new year. Beyond the immediate short-term there is a threat
that sector growth will be hampered by reduced population growth due to border closures –
historically an important contributor to local supermarket demand.

Specialty food and liquor retail
The specialty food and liquor retailing sector grew 13.0% during the 2020 calendar year, elevated
by first half growth as people spent more time at home eating and drinking. The main influence here
being the drinking – as consumers were forced to make the quick shift from licensed venues to their
home resulting in an increase in bottle shop runs. But as restrictions started to ease growth in
specialty food and liquor retail slowed but remained positive.

The slowdown in spending volumes was evident in the December quarter which fell by 1.9%
(although still up 14.8% from the same point in 2019). The key driver here continues to be liquor
retailing as nominal sale volumes grew 22.7% across the quarter – this is somewhat unsurprising
given the December quarter is usually one of festivities and now that venues have patron restrictions
this leaves many looking to party at home instead.

Specialty food and liquor spending continued a strong run into 2021, with liquor spending up 2.3%
and specialised food retailing up 3.1% over the monty of January.

Growth of this magnitude can’t last forever, particularly when the driving force is state and territory
restrictions that will eventually be removed altogether. As restrictions are gradually eased
consumers are expected to gradually pull back on at home solutions for eating and drinking, the
reason why spending volumes are expected to fall 8.6% in 2021 (from the very high levels seen in
December 2020)..

Catered food
Despite an extraordinary come back in the latter part of 2020, catered food sales volumes fell 16.7%
across the calendar year. It’s fair to say cafes, restaurants and bars felt the brunt of COVID
restrictions much more than most sectors, as businesses were forced to either close or operate under
heavy restrictions – a fact that saw catered food sales plummet in the first half of 2020. But the
latter half of the year was a story of resistance as restrictions began to (slowly) ease (with the initial
exception of Victoria) and consumers were itching to get out and spend to the point that it would
takes weeks to get a booking at venues, providing a crucial cushion after a disastrous first half to
the year.

In the December quarter catered food sales rose 10.4% (off the back of 28.1% in the quarter prior).
One reason for this was Victorian consumers coming back to the post-lockdown party (and spending
big when they did) and another reason is the continued easing of interstate borders and venue
restrictions providing additional demand from increased foot traffic (of course there were some
exceptions to this, the Northern Beaches in Sydney springs to mind). Despite the improvement,
spending remained 7.9% down compared to December 2019.

Lockdown measures took some heat out of the recovery in catered food spend. Takeaway services
fell 1.2% in January while spending on café, restaurants and catering was down 0.4% over the same
period. This has left spending starting the year down on pre-COVID levels.

But at least for now, state and territory borders are once again mostly operational and internal
COVID restrictions continue to be eased across the nation – bringing much delight to the sector.
After the slump in 2020, catered food spending is expected to rise 1.8% in the year to December
2021, making it the second-best performer for the year (and only one of two categories expected to

14
increase in size). Despite this, sales volumes are expected to take several years to fully recovery
from the 2020 fallout.

Chart 6: Apparel and household goods                Chart 7: Department and other retailing
          Year-to % change, real retail turnover            Year-to % change, real retail turnover
  50%                                                12%
                                        Forecast                                          Forecast
  40%                                                10%
  30%                                                 8%
  20%                                                 6%
  10%                                                 4%
     0%                                               2%
 -10%                                                 0%
 -20%                                                -2%
 -30%                                                -4%
 -40%                                                -6%
    Dec-15 Dec-17 Dec-19 Dec-21                        Dec-15 Dec-17 Dec-19 Dec-21

                Apparel           Household                          Dept stores            Other

Source: ABS Cat 8501.0, Deloitte Access Economics   Source: ABS Cat 8501.0, Deloitte Access Economics

Department stores and discount department stores
Department and discount department stores finished 2020 roughly where it ended 2019, having
declined only 0.1% in the 2020 calendar year. The initial fallout of COVID was detrimental to the
sector as consumer confidence plunged, restrictions were placed on foot traffic in department stores,
consumers become wary of their future income sources and households promptly switched to online
spending. But as the outlook started to improve, growth steadied while being constrained by
Victoria’s second lockdown that limited department stores to click and collect and online sales.

Sales volumes hit liftoff in the December quarter, rising 12.0% (up 6.5% compared to the same
point in the year prior). During the quarter Victoria put their best foot forward in assisting
department and discount department stores as nominal sales in the state more than doubled –
reflecting significant pent-up demand. But it wasn’t just Victoria playing catch-up – locals across
Australia played their part in helping department and discount department stores during the
Christmas period.

Department stores started 2021 on a softer note, with sales down 0.4% over the month of January.
Monthly sales are sitting above pre-COVID levels, but there are many challenges for the sector
including competition with online spending.

Sales volumes for department and discount department stores are expected to take a little longer
to bounce back than other retail categories. In part, this is due to the increasing role of online
spending, which is a major competitor to the one-stop-shop of a department store. In the year to
December 2021 sales volumes are expected to fall 3.7% (sitting the sector in the bottom of the
pack).

Apparel
Apparel was hit hard in 2020 falling 8.3% compared to the previous calendar year. Apparel retailing
is dependent on many things, perhaps the biggest being an open shop front. When retail outlets
were forced to close not everyone was willing or able to make their apparel purchases online
(reducing sales) and when you throw low consumer confidence and uncertain job security in the
mix, consumers will look to instead simply defer their purchases until things improve (reducing sales
further). In addition, limited ability to be out and about meant fewer reasons for new purchases.
The end result being that apparel sales volumes fell off a cliff in the first half of 2020. But in a see-

15
sawing motion, things quickly improved in the second half – driven by increased confidence, elevated
income from fiscal support measures and the reopening of shop fronts.

The extraordinary second half improvements in apparel retail sales were seen in the September
quarter which grew 35.5%. But thankfully for the sector it didn’t stop there as the December quarter
grew a further 18.1% (as sales volumes exceeded the December 2019 level). And like most of the
December quarter narrative, Victoria played an all-important role in supporting sector growth. As
the stage 4 lockdowns were lifted, Victorians indulged in some much need retail therapy hitting the
apparel shops in search of a new post-lockdown outfit, an event that saw nominal sale volumes
increase by a staggering 170.4% for the single quarter.

Clothing and footwear retailers started 2021 on a weaker note, with spending down 3.6% in January.
This was driven by clothing sales (down 6.1%) while footwear sales provided some support to the
sector (up 2.0%).

The snapback is sales volumes in 2020 was fast, but ongoing spending growth may now be slower.
Volumes are expected to moderate, falling 14.0% in the year to December 2021, making apparel
retailing the worst performing sector over the year to December 2021 (when measured against the
catch-up period in December 2020). Demand for apparel may remain lower than it otherwise could
have been due to ongoing international border closures and a slow-ish pace in returning to the office
for many.

Household goods
Household goods were a success story in 2020 as sales volumes grew 14.9% over the calendar year.
The sector largely owes its thanks to the lockdown restrictions that provided households with a lot
of additional spare time when the pandemic first hit. To keep occupied, households quickly begun to
consider new activities (limited confines of their own home) – this led people to home improvements
and other purchases that improved comfort and utility of their own home. As a result, sales volumes
skyrocketed in the first half of the year, but as restrictions on movements eased spending started
to moderate (as people sought other interests) and state divergences become clear. This was felt
particularly hard in Victoria as the stage 4 lockdown restrictions forced temporary closure.

Despite being helped along by Victoria’s reopening in the later part, the December quarter for
household goods went backwards – declining 0.6% (although the sector remains 16.1% higher than
compared to the same point in the previous year). This likely reflected the fact that many purchases
made by households earlier in the year were purchases simply brought forward and now given
consumers had a much wider variety of spending options (some for the first time since the pandemic)
it’s likely people spent their money elsewhere during the quarter.

Household goods spending moderated in January, with sales up just 0.1% over the month of
January. Solid spending in hardware, building and garden supplies (up 1.0%) and furniture, floor
coverings, houseware and textile goods (up 0.4%) was partially offset up a decline in sales of
electrical and electronic goods (down 1.0%).

After a strong 2020 household goods retailing is expected to move slightly backwards in 2021,
declining 1.9% in the year to December. Future growth in this sector is likely to reflect the fact that
spending on household goods has climbed its way up the priorities list as households have a greater
appreciation for improving their family living environment. In addition, a booming property market
is likely to add some further support to demand as consumers deck out their new purchase.

Other retailing
It was a good year for other retailing in 2020, with spending climbing 5.7% in what was almost a
flawless effort (minus one small setback the June quarter). The real stand out within the sector was
that of other recreational goods which includes sport and camping equipment, toy and game and
entertainment media – nominal sale volumes grew 24.9% over the calendar year. Unsurprisingly, in
a year that went digital, newspaper and book retailing felt the pinch as nominal sale volumes fell
11.5%.

16
The December quarter kept things moving along for other retailing as sales volumes jumped 2.7%
(up 9.9% from the same point in the year prior). Despite the downward trend in newspaper and
book retailing there was a resurgence as nominal spending rose 24.9% for the quarter. But it was
once again other recreational goods that took the growth cake – jumping up another 43.5% (in
nominal terms).

Other retailing started the year on strong footing, up 1.4% over the month of January. This was
driven by ongoing demand for recreation goods (up 7.2%) while moderating health concerns put
downward pressure on pharmaceutical, cosmetic and toiletry goods (down 1.2%).

Growth in other retailing is expected to slow in the year to December 2021, forecast to fall 1.3%
(despite declining the sector remains near the top of the 2021 categories pack).

Chart 8: Real retail turnover per capita, by category

     20%    Year to December 2020 % change, real retail turnover per capita

     15%

     10%

     5%

     0%

     -5%

 -10%

Source: ABS Cat 8501.0, Deloitte Access Economics

Online retailing
Online retailing really came into its own through 2020, as lockdown restrictions prompted a swift
change from purchases at a store front to purchases at the click of a button. At the start of 2020
online retail sales accounted for roughly 6.6% of total retail sales in Australia and by April this portion
swiftly jumped to 11.1% as the pandemic took hold. Now online sales account for 9.1% but getting
to this figure has been a bumpy road as some states moved in and out of lockdowns – the general
narrative of the COVID story. But the good news for online spending is that 9.1% is still much higher
than the pre-pandemic 6.6% - and will remain supported for two reasons. Firstly, due to ongoing
health concerns consumers are still limiting public outings and secondly, a growing trend towards
online purchases that has been accelerated through the crisis.

During 2020 there was a divergence between food and non-food online retailing, and it was non-
food that was the key stand out. In February, online non-food sales accounted for 10.9% of total
non-food sales, by April this number nearly doubled to 20.5% as consumers opted to make their
purchases in the safe confines of their home. The proportion of non-food sales remained high,
particularly during the Black Friday sales period. Online food sales as a proportion of total food sales
has moved around in 2020 and currently rests at 4.5%, still much higher than 2.8% at the end of
2019.

Online sales as a proportion of total sales measured by the ABS has been trending upward since the
commencement of the data series in 2013, but COVID has made this rate of increase much faster.
Although it may be a little time before Australia reaches the proportion of online sales levels we saw

17
in April last year, it is likely there is a structural change at play here as more shoppers are becoming
accustomed starting to use online channels more regularly.

18
Special feature: The
winners and losers of
COVID-19

 19
Special feature: The winners
and losers of COVID-19
Household spending behaviour has been thrown into disarray through 2020 as consumers’
inability and unwillingness to spend resulted in substantial declines in total spending. But
retailers have managed to be spared from most of the pain as they continue to receive a
relatively stable share of income. With consumers shifting away from travel and
hospitality services, sales of home-focused goods surged ahead. Some retailers have
benefitted more than others when it comes to shifts in spending behaviour, but this is all
up for grabs in 2021 as restrictions ease and consumers face weaker income growth.
Indeed, a return to normal poses a bigger risk to some retailers who have picked up their
share of wallet over the past year.

Retailers have weathered the storm well
During periods of economic uncertainty, consumer spending is one of the first aspects that comes
under pressure as consumers get nervous. During the Global Financial Crisis, real household
consumption growth slowed from 6.1% in 2007 to 2.0% in 2009.

But this crisis is unlike others, with households both unwilling and unable to spend. This resulted in
a significant drop in in consumer spending despite fiscal stimulus measures providing support for
household incomes. The share of income spent by consumers dropped from 86% in December 2019
to a low of 71% in March 2020, with the savings ratio surging to over 22%.

Chart 9: Spending as a share of real household disposable income

Source: ABS Cat 8501.0, ABS Cat 5206.0, Deloitte Access Economics

Retailers were mostly spared from this disruption. The share of income spent at retail outlets also
fell, but a much smaller drop from around 26% to around 25%. This was largely due to fewer
disruptions to operating conditions and the high share of essential retail goods.

In general, retail spending is more resilient to economic shocks than broader consumer spending.
During the GFC, the share of income used for consumption fell from 89% in 2007 to 85% in 2008,
while the share spent on retail only dropped from 27% to 26% over the same period. When
households look to cut back on spending as they build up savings in case of further economic pain,

20
retail goods are one of the last to be cut. But this experience is nothing compared to the current
crisis, where the divergence in retail and non-retail spending is starker.

Home is where the heart is under COVID-19 restrictions
Retailers aligned to the home have been the biggest beneficiaries under the COVID-19 crisis.
Household goods and supermarkets have increased their share of total spend by around 2
percentage points each. While this has started to ease as restrictions ease, both segments have
retained a large portion of this increased share of spend.

But retailers’ win has come at the expense of other sectors within the economy. Notably, the
hospitality and transportation sectors have experienced a substantial drop in their share of spend of
around 3 percentage points. Until borders open, both nationally on a reliable basis and
internationally, these segments of spend are likely to remain under pressure.

Chart 10: Spending as a share of real household consumption

Source: ABS Cat 8501.0, ABS Cat 5206.0, Deloitte Access Economics

Not all parts of retail have benefited under COVID-19. Some retailers are no longer viewed as
necessary as they once were, including clothing and footwear, which has lost around a 0.5
percentage point share of spend. In good news, this drop has recovered in the back half of 2020.

Future of retail will face headwinds
Looking forward, retailers are likely to experience a slowdown in growth. This is to be expected after
such a strong period through 2020. And where retailers were on the winning side of the
COVID-19 crisis, they are likely to be on the losing side of the recovery.

In 2020, income growth supported spending while increased savings left less in the wallet to spend.
This resulted in a large drop in overall spending across the economy. Retailers managed to avoid
the storm and benefited from a shift in how that money was spent, supporting an overall increase
in retail spending of 6.4% in the year to December 2020.

21
Chart 11: Contributions to retail spending growth, 2020

Source: ABS Cat 8501.0, ABS Cat 5206.0, Deloitte Access Economics

In 2021, a drop in incomes is expected to detract from spending. But this is likely to be outweighed
by households drawing down on savings, increasing the amount of money available for spending.
Unfortunately, retailers are likely to give back some of their increased share as borders open and
restrictions ease creating headwinds for the sector going forward. Overall, retailers are likely to end
the year slightly down from the heights of December 2020, with spending falling 0.4% in the year
to December 2021.

Chart 12: Retail spending as a share of real household consumption

Source: ABS Cat 8501.0, ABS Cat 5206.0, Deloitte Access Economics

Some retailers are expected to face more difficult conditions than others over the next year. This is
especially the case for those that have benefited from the lockdowns through 2020. Household
goods and specialty food retailing increased both their share of consumption and share of income.
This means households were willing to spend extra money in these areas as they limited spend
elsewhere. Around 8.2% of household goods retailing in 2020 was due to increased spending as a
share of income, which may be at risk going forward as households reassess their spending
behaviour. Household goods is likely at higher risk than specialty food retailing as this sector relates
to large periodic purchases that potentially were pulled forward over 2020, and don’t need to be

22
purchased regularly. The booming housing market will provide further support through 2021, but
there is a risk that this segment of spending faces something of a pull-back in spending.

Chart 13: Share of 2020 retail spend at risk, by category

Source: ABS Cat 8501.0, ABS Cat 5206.0, Deloitte Access Economics

Looking longer term, retailers’ share of total spend revert bck to a trend decline over time. It will
take time for certain parts of spending to reboot, including hospitality and travel as border
disruptions remain a common feature. If these issues are wholly resolved by vaccines, the shift in
spending behaviour could be more pronounced and result in a bigger handbrake for retail spending.

Chart 14: Retail spending as a share of real household consumption

Source: ABS Cat 8501.0, ABS Cat 5206.0, Deloitte Access Economics

The story is mixed across the various categories. While household goods retailing is facing a
substantial drop in its share of wallet, the outlook is up for catered food spending. But there are also

23
longer-term trends at play here, with household goods’ trend increase in capture of wallet pre-COVID
may provide some support in the future.

Chart 15: Retail spending as a share of real household consumption, by category

Source: ABS Cat 8501.0, ABS Cat 5206.0, Deloitte Access Economics

24
Forecast tables

25
Forecast tables
Table 1: Retail sales forecasts by category: volume, price and value
                                            History                Forecasts                                                       5 yr avg       5 yr avg
% change                                   2018-19     2019-20     2020-21      2021-22      2022-23     2023-24      2024-25     to 19-20       to 24-25

Volumes
Food retailing
 Supermarket retail                          0.7%        1.5%         3.7%         3.3%        1.1%        2.5%         3.1%         1.2%            2.8%
 Specialty food and liquor retail           -1.2%        3.5%         6.2%        -5.9%        0.1%        1.1%         2.1%         1.3%            0.6%
 Catered food                                1.4%       -10.4%        1.4%         3.8%        1.3%        3.5%         3.2%        -0.8%            2.6%
Total food                                   0.6%        -1.3%        3.5%         2.2%        1.1%        2.5%         3.0%         0.7%            2.5%
Non-food retailing
 Dep't stores and discount dep't stores      1.2%        -0.2%        6.0%        -0.6%       -1.3%        -0.2%       -0.3%        1.9%             0.7%
 Apparel                                     3.8%        -8.0%       11.3%        -4.3%        0.4%        0.8%         1.3%        2.2%             1.8%
 Households goods                            1.0%        6.7%        10.2%        -0.8%        1.4%        2.5%         2.2%        4.5%             3.0%
 Other retailing                             2.4%        1.8%         6.5%        -0.3%        0.7%        0.7%         0.9%        2.7%             1.7%
Total non-food                               2.0%        1.7%         8.6%        -1.2%        0.7%        1.4%         1.4%        3.2%             2.1%
Total turnover                               1.2%        0.0%         5.9%         0.6%        0.9%        2.0%         2.3%        1.9%             2.3%

Prices
Food retailing
 Supermarket retail                          3.0%        4.6%         5.2%        1.0%         1.4%        1.0%         2.2%        2.5%             2.1%
 Specialty food and liquor retail            3.0%        4.6%         5.2%        1.0%         1.4%        1.0%         2.2%        2.5%             2.1%
 Catered food                                2.0%        1.4%         1.8%        1.8%         1.3%        1.4%         1.5%        1.7%             1.6%
Total food                                   2.8%        3.8%         4.6%        1.1%         1.4%        1.1%         2.1%        2.3%             2.0%
Non-food retailing
 Dep't stores and discount dep't stores     -1.6%        -0.2%        0.0%        -1.2%        0.0%        0.2%         0.1%        -1.6%           -0.2%
 Apparel                                    -0.7%        0.4%        -1.2%        -0.3%        1.6%        0.5%        -0.1%        -0.7%            0.1%
 Households goods                           -1.3%        0.0%         2.6%        -0.9%       -1.4%        -0.9%        0.0%        -1.1%           -0.1%
 Other retailing                             1.4%        2.5%         2.9%        -1.6%       -1.3%        -0.6%       -0.7%         1.2%           -0.3%
Total non-food                              -0.4%        0.9%         1.8%        -1.1%       -0.7%        -0.5%       -0.2%        -0.4%           -0.2%
Total turnover                               1.3%        2.5%         3.2%         0.2%        0.5%        0.4%         1.1%         1.1%            1.1%

Values
Food retailing
 Supermarket retail                          4.4%        6.7%         7.6%         4.3%        2.7%        3.7%         5.4%        4.0%             4.7%
 Specialty food and liquor retail            2.4%        9.0%        10.1%        -4.9%        1.6%        2.3%         4.4%        4.1%             2.6%
 Catered food                                3.3%        -9.1%        3.3%         5.5%        2.8%        4.8%         4.8%        1.0%             4.2%
Total food                                   3.9%        2.9%         7.0%         3.4%        2.6%        3.8%         5.2%        3.3%             4.4%
Non-food retailing
 Dep't stores and discount dep't stores      0.3%        -0.4%        5.7%        -1.6%       -1.2%        0.0%        -0.2%        0.4%             0.5%
 Apparel                                     3.6%        -7.5%        9.4%        -3.8%        1.7%        1.1%         1.1%        1.5%             1.8%
 Households goods                            0.5%        6.9%        12.8%        -2.3%        0.1%        1.7%         2.3%        3.4%             2.8%
 Other retailing                             4.0%        4.9%         8.4%        -2.3%       -0.2%        0.1%         0.3%        4.1%             1.2%
Total non-food                               2.1%        2.8%        10.0%        -2.5%        0.1%        0.9%         1.2%        2.9%             1.8%
Total turnover                               3.1%        2.9%         8.3%         0.7%        1.5%        2.5%         3.4%        3.1%             3.3%

                                                      Category definitions in terms of ANZSIC classes
Supermarket retail: Includes supermarket and grocery stores (4110) and non-petrol sales (convenience stores) of selected Fuel retailing (4000).
Specialty food and liquor retail: Includes liquor retailing (4123), fresh meat, fish and poultry retailing (4121), fruit & vegetable retailing (4122) and
other specialised food retailing (4129).
Catered food: Includes cafes and restaurants (4511), takeaway food services (4512) and catering services (4513).
Department stores and discount department stores: Includes department stores (4260).
Apparel: Includes clothing retailing (4251), footwear retailing (4252), watch and jewellery retailing (4253) and other personal accessory retailing
Household goods retailing: Includes furniture retailing (4211), floor coverings retailing (4212) , houseware retailing (4213), manchester and other
textile goods retailing (4214), electrical, electronic and gas appliance retailing (4221), computer and computer peripheral retailing (4222), other
electrical and electronic goods retailing (4229), hardware and building supplies retailing (4231) and garden supplies retailing (4232).
Other retailing: Includes newspaper and book retailing (4244), other recreational goods retailing ◦Sport and camping equipment retailing (4241),
entertainment media retailing (4242), toy and game retailing (4243), pharmaceutical, cosmetic and toiletry goods retailing (4271), stationery goods
retailing (4272), antique and used goods retailing (4273), flower retailing (4274), other-store based retailing n.e.c (4279), non-store retailing (4310)
and retail commission-based buying and/or selling (4320).

26
Table 2: Retail turnover growth, by State
                  History             Forecasts                                            5 yr avg    5 yr avg
Real % change    2018-19    2019-20   2020-21     2021-22   2022-23   2023-24   2024-25   to 19-20    to 24-25

 Australia        1.2%       0.0%       5.9%       0.6%      0.9%      2.0%      2.3%      1.9%        2.3%
 NSW              0.5%       -1.7%      7.4%       -0.1%     1.3%      1.5%      2.1%      1.7%        2.4%
 VIC              3.0%       -0.9%     -0.5%       3.6%      1.7%      3.0%      2.2%      2.7%        2.0%
 QLD              1.9%       2.8%       8.9%       0.4%      0.2%      1.9%      2.6%      1.8%        2.8%
 SA               0.3%       -0.6%      4.5%       -1.2%     0.2%      2.4%      2.7%      1.9%        1.7%
 WA               -1.3%      2.1%      10.6%       -1.7%     -0.3%     1.4%      2.2%      0.4%        2.3%
 TAS              1.8%       2.8%       8.3%       -1.3%     -0.3%     0.5%      1.5%      3.0%        1.7%
 NT               -3.4%      0.2%       8.3%       -0.4%     0.4%      1.1%      1.3%      -0.5%       2.1%
 ACT              1.7%       0.9%       8.6%       -1.3%     0.5%      2.4%      2.9%      2.7%        2.6%

Detailed consumer spending data for more than 30 categories of consumer expenditure is also
available for purchase, as an add-on to Retail Forecasts. The data is provided in terms of volumes,
values and prices, and reported nationally and for each State/Territory, with ten years of forecasts.

For publication and subscription information, please see
https://www2.deloitte.com/au/en/pages/finance/articles/dae-publications-subscribe.html

27
Our retail forecasting
and analysis
capabilities
28
Our retail forecasting and
analysis capabilities
Retail forecasts and analysis are a key focus of our macroeconomics practice
Deloitte Access Economics specialises in research of the movements of key drivers in the Australian
economy. By combining this wealth of knowledge with research on consumer behaviour and the
retail market, we can analyse current retail supply and demand characteristics, forecast future
movements and make informed recommendations for retail development, investment and strategy.
At Deloitte Access Economics, we draw on our highly reputable research into key drivers of retail
demand to provide insights to clients. These drivers include the following:

•    Consumer        behaviour:      Consumers’       changing
     preferences and needs
•    Consumer sentiment: How consumers react to
     economic changes
•    Household income and debt: Current and future
     insights on disposable income
•    Population and socio-demographics: How the
     population is likely to change over time
•    Technological influences: The effect of technology
     and the internet on retail
•    Macroeconomic influences: How the economy at the
     state, national and world level affects the retail market.

Our core capabilities
We can forecast retail turnover

•    Retail turnover forecasting, at national, state or regional level if required, based on ABS,
     Household Final Consumption Expenditure and tailored retail categories

We can analyse a specific product or place
•    Regional economic profiling and forecasting, with a focus on the retail sector
•    Consumer product pricing, competition and performance analysis
•    Shopping centres and retail precinct competition and performance analysis
•    Economic impact analysis for major retail developments or decisions

We can contextualise retail trends using our economic knowledge

•    Commentary on retail performance, growth and trends within an economic context
•    Consumer behaviour and consumption habits analysis
•    Digital influence analysis of retail and consumer products
•    Retail trends analysis and forecasts, in terms of both supply and demand trends

Drawing on the above, we can help with forward planning

•    Network planning for retailers and centre owners
•    Strategic planning for retail sector decision-makers
•    Scenario planning for retail sector decision-makers

29
Our project experience
Deloitte Access Economics has delivered a range of insights for the retail sector, including:

•    Economic contribution work for a number of major retail stakeholders
•    Competition policy analysis for major retailers
•    Price and productivity analysis at a category level for major retailers
•    Analysis of Australian online retailing for major stakeholders in the retail sector
•    Mobile Nation: opportunities and strategies for retail for Australian Mobile Telecommunications
     Association
•    Monthly economic briefs for a major retailer (ongoing work over several years)
•    Monthly retail trade briefs for a major retail stakeholder (ongoing work over several years)
•    Commentary on key drivers of retail sector performance, delivered to a number of clients as
     reports and/or presentations
•    Economic outlook commentary, as it relates to the retail sector.

Deloitte’s other publications
Please click the icons to see other retail publications by Deloitte.

                                                             Global State of the Consumer
              The Retail Rundown
                                                             Tracker
              Exploring the latest trends and
                                                             Establishing the road to a global
              innovations in retail
                                                             consumer recovery in the era of COVID

              CFO Sentiment Edition 10                       Retailers’ Christmas Survey 2020
              Confidence bounces back                        Stepping out of the bubble

Our team
Deloitte Access Economics has a team with strong experience in forecasting and retail market
analysis for diverse client groups.

David Rumbens                      Kristian Kolding
Partner                            Partner
drumbens@deloitte.com.au           kkolding@deloitte.com.au
+61 3 9671 7992                    +61 410 409 070

Emily Dabbs                        Ben Rada
Associate Director                 Graduate
emdabbs@deloitte.com.au            brada@deloitte.com.au
+61 424 389 909

30
Our publications

31
Our publications
Budget Monitor
Budget Monitor is a key source of independent private sector projections of Federal budget trends
in Australia. Budgets are analysed and projections made, including detailed estimates of future
spending and revenue levels. Budget Monitor is prepared twice a year, prior to the Mid-Year Review
and to the Federal Budget itself.

Business Outlook
Business Outlook is a quarterly publication aimed at those who require depth of detail about the
business environment, analysing prospects across 22 industries and each of the Australian States
and Territories. It provides facts, figures and forecasts on Australian and world growth prospects,
interest rates and exchange rates, wages and prices, exports and imports, jobs and unemployment,
taxes and public sector spending. These forecasts strengthen and enhance your strategic planning
capacity.

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Employment Forecasts is released quarterly and provides forecasts and commentary for each
industry, plus white collar, blue collar and office demand index (where the latter draws on the ‘office
intensity’ of each industry). There are three levels of data available: state, city and CBD. Employment
Forecasts is particularly useful in the analysis of property market demand.

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Investment Monitor is a quarterly publication that provides detailed data on major business and
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Retail Forecasts is a quarterly publication that provides an analysis of current retail sales and
consumer spending, and the important economic drivers that influence them. It includes ten-year
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Consumer Spending provides ten-year forecasts of detailed Household Final Consumption
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Tourism and Hotel Market Outlook is an annual publication that provides insight into the issues facing
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