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Department stores rebound in February

kawana-shoppingworldRetail turnover has risen 0.6 per cent in February, blowing past consensus estimates on a rebound in department store spending.

The figures are twice the 0.3 per cent monthly growth economists were expecting and three times higher than the 0.2 per cent increase in turnover recorded in January.

Year-on-year retail spending increased by 3.01 per cent, up from 2.1 per cent in January and the strongest rate of growth since July 2017.

All retail sector industries recorded seasonally adjusted monthly growth, with department stores leading the way with a 1.5 per cent increase in spending and year-on-year growth of 0.46 per cent.

Clothing, footwear and personal accessories also turned around, recording a 1.1 per cent increase in month-on-month spending and a 1.06 per cent increase in year-on-year turnover after several months of lacklustre growth

The numbers are positive news for Australian fashion retailers, many of whom have struggled with subdued trading conditions over the last eighteen months.

Household goods rose 0.6 per cent in February, growing by 3.16 per cent year-on-year, while Other Retailing was up 0.2 per cent for the month, increasing 3.42 per cent year-on-year.

Food retailing turnover increased by 0.26 per cent monthly, growing by 2.66 per cent year-on-year compared to a 0.74 per cent increase in café’s restaurants and takeaway food services in February, which grew by 3.51 per cent year-on-year.

Australian Retailers Association (ARA) executive director Russell Zimmerman said that the better-than-expected fashion figures are likely a result of “pent up spending”.

“It’s a nice start to the year,” he said. “The growth has come from pent up spending in fashion and footwear along with a later than usual back to school trade.”

Zimmerman cautioned interpreting the February figures as an indicative of a sustained increase or broader turnaround in fashion spending though.

“I’d want to see a sustained increase before I call it that … we’re hopeful that this might be a continuation but I’d want to see more than one month before I said this is really a great sign,” he said.

ANZ’s senior economist Jo Masters said that the February figures were encouraging, but has maintained a cautious outlook on the sector.

“While it’s encouraging that retail sales didn’t falter again, we remain cautious about the outlook given the challenges facing household balance sheets,” Masters said. “Anaemic wage growth, record high debt, slowing house price growth and most recently a stalling in consumer confidence all act to offset the strength in jobs growth.”

Commonwealth Bank senior economist John Peters had a similar view, saying that March and April figures will be indicative of any sustained strength for the retail sector.

“Looking ahead, it is heartening to see some strengthening in the underlying trend in retail turnover, but we will need to see continuing strength in upcoming monthly data to safely say that consumers are back and spending up permanently again,” he said.

The trend estimate for retail turnover increased by .4 per cent in February, up slightly on the 0.3 per cent rise recorded in January. Year-on-year the trend estimate rose 2.7 per cent.

Online retail turnover contributed 5.1 per cent of total turnover in February, up from 3.6 per cent in February 2017.

The result is likely to buoy the RBA, which yesterday kept the official cash rate on hold at 1.5 per cent, signalling it would be watching retail spending data closely amid concerns over household spending.

National Retailers Association CEO Dominique Lamb said that the RBA’s decision to keep rates on hold should assist in a possible sector-wide rebound, but warned traders not to get complacent.

“It is important that retail does not get complacent following the February figures and the decision by the RBA to keep interest rates on hold should assist in seeing consumer confidence continue to rebound,” she said.

“With no state or federal election due between now and November hopefully we will see a stable environment in the months ahead that leads to solid sales figures.”

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