Retail sales growth of 5.6% for March 2023 is fading towards long-term trend growth and the additional detail reveals a more meaningful slowdown in non-food retail. Electronics, furniture and hardware all showed notable declines and footwear slowed markedly in March. Online sales only rose 1.1%, which reflects weaker demand in non-food retail. The data also suggests retail volume growth is barely positive. The fade in inflation is the key call on retail from here. We expect continued weaker sales trends over the next 12 months.

Retail sales rose 6.5% in February 2023. The additional detail showed a substantial slowdown in electronics, and small declines in hardware and furniture. This is the start of the downturn, which is now impacting those categories that tend to have the quickest reaction to interest rate increases and had the greatest pull forward during COVID-19. While demand elsewhere looks to be holding up well, it is largely price inflation driven. Underlying trends are softening, and a broader retail slowdown will be evident in coming months in our view.

Australian retail sales growth of 7.7% for January 2023 year on year is a healthy rate of growth overall, but under the surface shows a shift in the allocation of spend, away from housing-related retail, towards recreation and dining. The drop in growth for housing-related retail is inevitable given its two years of elevated growth combined with a fall in housing churn. Other categories will slow soon, but for the time-being they are benefiting from the normalisation of supply and consumer preferences.

Australian retail sales data for December 2022 shows strong overall growth but increasing dispersion across categories. Both supermarkets and cafes & restaurants did well. Department stores also had a strong month. Household goods were weak, especially given the level of price inflation. Additional disclosure from ABS on volumes, shows that 80% of the strong December quarter for retail growth came from price inflation. The timeline of price inflation fading will have a significant bearing on the slowdown in retail in 2023 and adds to near-term risks in household goods but should result in stronger sales in food categories for this calendar year.

Australian retail sales growth of 7.7% for November 2022 continues the strong run during the calendar year. The growth is impressive given incredibly strong growth in both 2020 and 2021 for November as the country emerged from lockdowns. There was very high growth in café & restaurants, a sign of consumer confidence in our view. Sales rebounded strongly in supermarket and liquor too. Generally, high price inflation is propping up growth across the industry and will continue to do so into the first-half of calendar 2023.

The shape of the recovery in Australian tourism remains a tailwind, not a headwind for retail. As at December 2022, Australians are still over-indexing on local stays. This tends to boost sales in supermarkets, liquor, apparel, pubs, restaurants and cafes. In addition, recent data also shows net migration is recovering rapidly. If current trends hold, by June 2023, population growth could be 1.5%, compared with 1.0% for the year to June 2022. This step-up in population will partly cushion the impending downturn in retail spending. We expect any downturn in retail sales is more likely around June 2023, not earlier.

Many Australian retailers have a presence in New Zealand. However, not all are successful in that market. In Issue 5 of The Retail Mosaic, we analyse the consumer, retail structure and profitability of retailers in NZ. Even though the consumer has similar attributes, growth rates diverge often. While some retail segments are more consolidated, many Australian retailers with operations in NZ lack scale.

Australian retail is setup for a good Christmas this year. The growth rates leading into Christmas has been far stronger than last year and while supply chains are not seamless, they are functioning better. Our feedback indicates low single digit sales growth for many with some stronger anecdotes. Given the timing of Omicron last year, sales feedback should strengthen further into Christmas and January 2023. We expect strong trading to lead to upside risk in near-term earnings for retailers.

Australian retail sales growth for October 2022 was 12.0% year-on-year. This is still elevated given part of the month was impacted by lockdowns last year. Once again, three-year CAGR growth rates are more relevant. On that basis, recreational goods, liquor and department stores slowed. It is important to note, we will be back to single-digit industry sales growth in November given the very high base line from 2021. A more noticeable slowdown will be evident in the June quarter 2023.

Australian retail sales rose 18.6% year on year in September 2022. The three-year compound annual growth rate for September was 8.8%, an acceleration on 7.7% in August. Interestingly, COVID-19 winning categories, hardware and furniture, have started to slow this month. Online sales have continued to fall, down 18.6% year on year, largely reflecting lockdowns last year. The three-year CAGR remains at 27%. We expect overall retail sales will show weakness in November as we lap large Black Friday sales. Retail sales are likely to be softer in 2023 as higher interest rates take effect and savings rates are lower.