The link provides a presentation associated with a webinar we held. The webinar addressed our updated outlook for retail sales and the drivers of a recovery in retail spending. In the presentation, we answer the question of whether consumers will spend or save their income growth, quantifying the impact of rate cuts and tax cuts, which retail categories we expect to outperform in FY25e, and a comparison of Australia with offshore markets.

We have updated our retail sales forecasts, which are modestly higher in FY25e and slightly lower in FY26e. We forecast FY25e retail sales growth of 3.2% (prev 2.9%) and the largest driver of our revisions is stronger non-food online sales growth. A retail recovery is underway, because this year has unquestionably strong household income growth, which sets a solid base for retail spending. However, households have a low savings rate, which detracts from the upswing. We expect a more notable pick up in household goods and online with softer sales in dining out for FY25e.

Australian retail sales rose 2.1% year-on-year in May 2024, which is the best underlying rate of growth since November 2023. The glass half-full would suggest we may be past the trough for retail. The glass half-empty is that the rate of growth is still very weak and indicative of per capita declines in retail volumes. We do think we are now past the trough in volumes, but we don’t expect a swift recovery in retail spending.

Australian retail sales rose 1.2% in April 2024. To adjust for the noise of the timing of Easter we also look at the combined March-April results which shows sales growth of only 1.3%. Department stores and fashion have had the most notable slowdown over the Easter trading period. Supermarket sales are also soft considering data suggests higher inflation in March-April. We forecast subdued retail sales growth trends to continue to June 2024, with a mild pick up for the back-half of calendar 2024.

We have written a detailed report on Lovisa, a global, affordable, fast fashion jewellery retailer with a strong growth opportunity. We forecast the store network to grow at a compound annual growth rate of 15% over the next four years with stores in existing and new markets. EBIT is forecast to grow at 23% annually over four years in our base case. 

Australian retail sales increased 3.0% in June 2023. The notable swings for the month were a moderation in the sales decline for electronics but a sharper slowdown for fashion and department stores. The downturn is spreading to more categories and will continue through to late this calendar year. The data also reveals that retail volumes per capita declined by 3.4% in the June 2023 quarter. Elevated price inflation is propping up spending and will fade later this calendar year in non-food and by mid-2024 in food.

While retail sales have started 2023 at a healthy run-rate, a downturn is looming. In this report, we detail our forecast for retail sales and emphasise that the June 2023 quarter is likely to be much weaker in non-food with food retailing propped up by inflation. The downturn is just commencing and likely to last until the end of 2024. We forecast retail sales growth of 2% in 2023, compared with 11% achieved in 2022 and long-term trends of 5%.

Amazon Australia’s 2022 financial results reveal the retailer has delivered very strong sales growth with improving profitability. This is in stark contrast to the declining sales and loss-making results for some online pure plays. In our view, Amazon is investing for the long-term, which is evident in its distribution centre infrastructure, marketing investment and Amazon Prime membership, which may now be one in four Australian households. The debate in our mind is how much money and time will be spent by Wesfarmers and Woolworths trying to establish their own online ecosystem. We expect it to be costly for all involved.

Amazon has made some noteworthy decisions in Australia. It now has a massive 200,000 sqm distribution centre (DC) operating in Western Sydney and has held back on raising the price of Prime, unlike the US. Is this a sign of more aggressive customer acquisition in Australia? Why is Prime so much cheaper here than in the US? In our view, Amazon is simply in its infancy. It will need to expand its same day delivery service before lifting the price of Prime. In order to offer same day delivery, Amazon probably needs 3-4x the DC capacity that it has today.