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.

Over the next six weeks a number of retailers will provide updates on their trading. We expect to see incredibly strong sales for most non-food retailers. September sales growth could be north of 20% and October could be up low double-digits. Supermarkets have seen slower sales recently, but should see an acceleration starting to show through in October. November could be a speed bump given enormous growth rates in 2020 and 2021. However, Black Friday promotions may start earlier and more retailers are likely to participate. We also expect a solid December trading period across the retail sector.

Australian retail sales rose 19.4% year on year in August 2022. The three-year compound annual growth rate for August was 7.7%, very similar to July 2022 at 8.3%. The most interesting headline is online sales were down 15% year on year, but this largely reflects lockdowns from last year. The three-year online CAGR is still 27%. We expect overall retail sales will remain firm with the first signs of weakness likely in November 2022 given two years of high growth for that month. Retail sales are likely to be softer in 2023 as higher interest rates take effect and savings rates are lower.

Australian retail sales rose 15.8% year on year in July 2022. The three-year compound annual growth rate for July was 8.3%, broadly similar to June 2022 at 7.8%. The year on year growth will be very noisy over July-October given lockdowns from last year. We focus on growth vs 2019 and on that score, recreational goods, apparel, footwear and jewellery had the strongest growth in July 2022. In our view, retail sales will remain firm with the first signs of weakness possible in November 2022. Retail sales are likely to be softer in 2023 given lower household income growth.

Australian retail sales rose 12.2% year on year in June 2022. The three year compound annual growth rate for June was 7.8%, significantly above long term trends around 5%. Drilling down into categories, the strongest were cafes & restaurants and fashion. The only spot of weakness was fresh food specialists. In our view, retail sales will remain strong through the next four months lapping lockdowns from a year ago, with the first signs of weakness possible in November 2022. Retail sales are likely to be weak in 2023 given lower household income growth.

Australian retail sales rose 10.3% in May 2022. While it is a slowdown from April’s growth rate of 11.1%, the moderation in growth is mild, particularly given the pressures on consumers from higher interest rates and petrol prices. The Easter boost to supermarkets, liquor and apparel has faded, but all categories did well in May other than takeaway food which was up only 2.5%. In our view, April 2022 was the peak of retail sales and growth will slow each month going forward. Negative headlines may hit sales briefly, but the more fundamental slowdown associated with lower household incomes is more a risk to 2023 sales growth.

Australian retail sales rose 11.1% in April 2022. This is a remarkable growth rate with a three-year CAGR of 9.1%. The detailed disclosure by the ABS showed a meaningful acceleration in supermarkets, liquor and department stores. We attribute this move to the rebound in domestic tourism given school holidays in April. Even though we are positive on retail spending, these growth rates are unlikely to persist. We think April is the peak with a gradual slowdown this calendar year and more noticeable one in 2023.