Retail lagging behind, says NAB chief economist

Business conditions improved through the month of August, though the retail industry continues to lag behind, according to NAB’s monthly business survey for the month of August.

“The rise in the month was driven by an improvement in both profitability and trading conditions, while the employment index was unchanged,” NAB Group chief economist Alan Oster said.

“[However], the retail sector remains weak, being the only industry to record negative conditions and lagging other industries as it has done for some time.”

Comparatively, mining, manufacturing, finance, business and property all drove the increase in business conditions.

The report also noted that retail prices had increased by 0.9 per cent, a large increase over July’s 0.5 per cent increase and June’s 0.1 per cent increase.

Investment in the retail sector was seen to be below average due to the structural changes underway through many retail businesses, though remained positive – likely due to investments by some businesses to reshape themselves in order to meet the challenges ahead.

Confidence down for businesses, consumers

While most survey indicators saw an improvement in the month, business confidence fell to below average levels after remaining relatively steady since May, potentially due to lower spending by consumers.

Research firm Deloitte noted in their quarterly Retail Forecasts report for Q3 2018 that household budgets remained under pressure due to subdued wage growth and non-discretionary price rises.

The report added that consumers were dipping into their savings accounts to facilitate spending, which actually led to higher spending through retail for the quarter – with a 1.2 per cent growth in turnover.

“However, this is not sustainable support and savings-driven growth can’t last forever,” Deloitte retail forecasts principal author David Rumbens said.

Rumbens went on to add that weaker consumer confidence will have an effect on spending on large items, while food will benefit from small wage growth improvement.

“A small pick-up in wages will provide a broad-based boost to household incomes, and support spending on food, apparel and other staples,” said Rumbens.

Quarterly, the report noted that retail volumes rose by 1.3 per cent, but that growth is set to moderate.

“Department store sales were particularly strong after a disappointing start to 2018, growing 2.2 per cent over the quarter. But this pace of growth cannot be sustained given the pressure on household budgets,” Rumbens said.

“Intense competition and rising operating costs will weigh on many retailers, but those focused on the value they offer to the consumer are likely to do well in terms of both sales and profitability.”

This story first appeared in Inside Retail, a sibling publication to Inside Franchise Business.