Christmas sales to be characterised by cautious spending

Friday 11 November, 2016

The most recent retail trade data released by the Australian Bureau of Statistics (ABS) has shown signs of continued sales momentum in Queensland, with the official growth rate rising by 0.4 points to 3.1 per cent in September.

This headline figure represents five straight months of rising sales growth, with Queensland now growing at a larger rate than the national average for the first time since November 2013, and importantly, the only state with an upward trend leading into Christmas.

Much of the current drive has come from improvements in furniture and homewares, electrical and electronic goods, as well as hardware, all of which are making significant contributions to retail sales across Queensland.

It is clothing and apparel however, which is recording the strongest sales results producing an annual growth rate of 16.2 per cent (trend) in September, which is 12 straight months of double-digit growth for this category.

Consumer spending at cafes and restaurants, and takeaway food outlets, has also seen a return to positive form in recent months, after an extended period of negative growth across Queensland.

These trade figures should provide optimism for retail businesses as the critical Christmas sales period, which is the last two months of November, and all of December, rapidly approaches.

Analysis conducted by CCIQ predicts that Christmas sales will increase by 3.9 percent in 2016, reaching a record total spend of $9.13 billion.

This would be the first time the $9 billion mark has been surpassed in Queensland, and although below the ten-year average of 4.2 per cent, would still be a good result for Queensland given the weak sales figures across much of 2016.

xmas graphic

Source: ABS; CCIQ

This figure was produced through careful analysis of historical retail trade data, recent sales trends, and factors that are known to influence holiday sales.

Key variables that underpin consumer confidence and spending, such as interest rates, unemployment, and consumer debt levels, have been incorporated into a forecast model to reach the estimated sales figure.

While interest rates remain at historically low levels, it is unclear if this is having a meaningful impact on reducing caution in consumer spending.

Indeed, recent evidence suggests that discretionary income is being directed towards debt reduction and household savings, as opposed to spending on goods and services.

In addition to this, with unemployment remaining above 6 per cent, a declining labour force participation rate, low wage growth, and record high household debt to income, it is likely that Christmas in Queensland will be characterised by a cautious consumer.

The day on which December 25 falls in 2016 does have the potential to offset some these factors however, and push Christmas sales higher than expected. In terms of sales potential, it is best that Christmas falls on a Sunday or Monday, in order to maximise the number of weekend shopping days in the holiday trade period.

With Christmas falling on a Sunday in 2016, it is possible that retailers may enjoy a final sales hit, driving growth higher.

Even if this is not achieved, a result of 3.9 per cent in Christmas sales will be larger than the figure that was recorded in 2015 (3.4 per cent) and 2014 (1.6 per cent), and should be a welcome result for the retail industry in Queensland.

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