Oct 11 2020
The outlook for retailers in the upcoming Christmas season is bleak, as negative consumer sentiment, high unemployment, and falling real household discretionary incomes weigh on consumption expenditure. Despite the benefit of back-dated tax cuts revealed in the 2020-21 Federal Budget, Christmas spending in key product categories is expected to decline.
‘Consumer electronics retailing is expected to be 2.7% lower this December, relative to last Christmas. Department store turnover is expected to be 1.0% lower, at $2.8 billion’, said IBISWorld Senior Industry Analyst, Yin Yeoh.
However, some industries are set to benefit despite the difficult retail environment. The Online Shopping industry is projected to grow by 6.4% in 2020-21, as consumers seek out lower prices and the convenience of door step delivery. More consumers are also expected to use Buy Now Pay Later services during their Christmas shopping, to avoid accumulating credit card debt.
‘Australians will be looking harder for bargains this year with recession now a reality,’ said Ms Yeoh.
Supermarkets a bright spot
While many retail industries will struggle, the Supermarkets and Grocery Stores industry is expected to outperform in the upcoming Christmas season. Supermarkets and grocery stores are expected to benefit from more Australians remaining in the country for the holidays due to international travel restrictions. Festive feasting is projected to drive sales, with spending expected to reach $11.1 billion in December 2020, an increase of 2.8% from last year’s holiday period.
‘Families are expected to go all-out on their Christmas feasts this year, with many Australians celebrating their ability to reunite with family after states reopen borders and ease social distancing regulations,’ said Ms Yeoh.
The Liquor Retailing industry is also expected to benefit from this trend, with Christmas revenue expected to increase by 3.6% this season, to total $1.6 billion. While the upcoming Christmas season provides major opportunities for supermarkets and liquor retailers, growing competition in these industries is expected to exert downward pressure on prices and profit margins.
Economic uncertainty weighs on retail spending
A number of factors are expected to make December a particularly challenging month for store-based retailers, including economic uncertainty, negative consumer sentiment, and changing consumer purchasing habits, such as the shift toward Christmas shopping in November. Consumer sentiment is expected to remain negative in 2020-21, while household discretionary income is expected to fall by 7.8%. Unemployment is expected to remain higher than average throughout the year, despite the extension of JobKeeper and JobSeeker supplements until March 2021.
‘Although many households are likely to receive a cash injection from the recent Federal Budget, there is a high likelihood that these funds will be saved rather than spent, providing little help to the ailing retail sector’, said Ms Yeoh.
The Consumer Goods Retailing industry posted a revenue decline of 15.8% in 2019-20, and is expected to decline by a further 2.1% in 2020-21. While the Christmas period is expected to be bleak, a rebound in retail in the first half of 2020-21 is likely to support the overall annual retail result.
‘The outlook for the retail sector, and the economy overall, is largely dependent on the rate of new COVID-19 cases across the country. Australia is making promising progress in this regard, which should make retailers optimistic for a rebound next year’, said Ms Yeoh.
Spending coming forward
Over the past five years, many Australians have changed their spending habits and carried out Christmas shopping earlier to avoid crowds and take advantage of popular sales events like Black Friday and Cyber Monday. Retail expenditure across most consumer goods sectors has shifted from December toward November, and this trend is expected to continue in 2020-21.
‘A 7.8% decline in discretionary income this year is likely to cause some consumers to postpone expensive gadget purchases. However, consumers are still expected to take advantage of Cyber Monday and Amazon Prime sales. Other large players, such as JB Hi-Fi and Harvey Norman, are likely to offer discounts during the same period, in an effort to retain market share,’ said Ms Yeoh.
IBISWorld reports used to develop this release:
- Supermarkets and Grocery Stores in Australia
- Liquor Retailing in Australia
- Online Shopping in Australia
- Buy Now Pay Later in Australia
- Consumer Goods Retailing in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647