Australia: Retail sales recover, price competition heats up - Westpac

Matthew Hassan, Research Analyst at Westpac, notes that the December retail report of Australia came in a little below consensus for the month but was broadly in line with expectations for the quarter as a whole.

Key Quotes

“Sales declined 0.5% in December – a slightly bigger retracement than the –0.2% expected but with November’s surge nudged up from 1.2% to 1.3%mth. Recall that much of the November rise was due to the launch of the new iPhone X and the increased popularity of ‘Black Friday’ sales. Hence a retracement in December was widely expected.”

“The sub-category detail showed a solid 0.7% gain for food retail in the December month but sales down across all other categories led by material falls in household goods (–2.6%) and ‘other retail’ (–1.8%mth), the categories most affected by one-off positives in November. Excluding these two sub-categories, retail sales rose 0.5% in November and 0.2% in December, suggesting underlying momentum is still positive.”

“For Q4 as a whole, real retail sales rose 0.9%, slightly under the consensus forecast of 1% but above Westpac’s forecast of +0.6%qtr. For us the main surprise was around prices – with discounting in non-food sectors even more aggressive than the Q4 CPI had suggested. Retail prices overall rose just 0.2%qtr and were down 0.1%yr – and non-food retail prices were down 0.9%qtr, 2%yr. The fastest rate of decline since the early 2000s when a rising AUD was generating significant falls in imported goods prices.”

“For the quarter as a whole, volumes posted strong gains for household goods (+3.4%), clothing (+2.1%) and department stores (+2.3%) and a solid rise for cafes and restaurants (+1.6%) but declines for food (–1.2%) and ‘other retail’ (–0.6%qtr).”

“Overall, the report confirms a solid recovery from the weak September quarter but suggests price competition in non-food sectors is fierce. With much of this likely to have impacted in the December month, when Amazon launched its Australian offering, the soft December monthly result may have more to do with prices than demand. The Q4 data points to some slight upside risks to the wider consumption estimates in the Q4 national accounts (to be released March 7).”