Spending on household goods in Australia, including fashion, has surged by 4.4 per cent month-on-month according to CommBank’s Household Spending Insights (HSI), but the latest reports from consultancy firm KPMG indicate it’s not all smiles and rainbows.
The recent monthly lift in household goods spending in August follows a 1.5 per cent rise in July. CommBank reported that much of the monthly surge in August was driven by early Father’s Day splurges, seen in increased interest in hardware stores, department stores and men's clothing stores.
CommBank also reported a 4.9 per cent year-on-year lift in household goods spending in August, which is higher than the 1.6 per cent yearly lift reported in July.
Yearly consumer spending was most noted across online marketplaces, hardware stores, discount and premium department stores, as well as men's and women's clothing stores. However, this was partly offset by reduced spending on luxury boutiques, bathroom retailers, housewares and decorative retailing.
Household goods joined nine other retail categories - including services - recording lifts, with the highest recorded in hospitality, which was up 5.2 per cent month-on-month and 7.5 per cent year-on-year.
CommBank reported that the annual pace of spending overall in the year to August remains subdued at 3.7 per cent for the year.
“An early Father’s Day boosted spending in August as consumers appear to have lifted spend on household goods, while hospitality venues also saw people open their wallets during the month,” CBA chief economist Stephen Halmarick said.
“The last time Father’s Day fell so early in the year spending retreated in September, which is worth keeping in mind as the annual spending rate still suggests a relatively weak consumer.”
The CommBank HSI Index tracks month-on-month data at a macro level and is based on de-identified payments data from approximately 7 million CBA customers, comprising roughly 30 per cent of all Australian consumer transactions.
Despite the recent spending boom across CommBank consumers, KPMG Australia’s latest Retail Health Index (RHI) indicated another setback for the retail sector with a full recovery unlikely to occur before the end of 2025.
Between the March quarter 2024 and the June quarter 2024, the RHI further fell by 0.24 index points, moving from -1.49 to -1.73. The fall was primarily driven by higher producer prices and worsened consumer sentiment.
Retail volumes and consumer sentiment continues to decline, as retailers bear the brunt of Australia’s two speed economy which sees renters and mortgage owners’ pair back spending while out right homeowners and older Australians continue to splurge.
KPMG also reported that the profitability for the retail sector is continuing to get squeezed as discounting-led sales activity is leading to reduced margins given operating constraints and wages continue to escalate.
While the decline in profitability in the retail sector was smaller than the overall industry profit drop of 3.9 per cent, the retail sector’s contribution to total industry profit remained at just 4.7 per cent. KPMG claimed this is well below its long-term average of 6.3 per cent.
“Retailers are currently weathering a perfect economic storm where consumer spending is down at the same time wages, manufacturing and operating costs are up,” KPMG chief economist Dr Brendan Rynne said.
“The latest national accounts show industry gross value added (IGVA) has recorded 2 quarters of negative growth while food and accommodation has gone backwards over the past three quarters.
“So, while the economy is just holding onto slight growth, the retail sectors are absolutely in a technical industry recession.”
Meanwhile, KPMG reported that outright homeowners unaffected by interest rate increases are diverting their spending from in-stores and local restaurants towards overseas travel.
“The post-COVID bounce in overseas travel appears to have reset spending patterns in the near term, with ‘cashed-up’ consumers seemingly preferring to allocate ‘big ticket’ spending towards overseas holidays and leisure rather than on major household goods,” KPMG head of retail and consumer James Stewart said.
The number of Australian travellers increased by 7.3 percent in the 12 months to June 2024. This contrasts with weakened household spending on discretionary items which fell by 1 percent over the three months to the end of the June quarter and household savings which remain “anaemic”, KPMG wrote, well below the long-term average of around 5 to 6 precent.
KPMG estimates that per capita retail sales have now declined for each of the last 8 quarters, despite a significant rise in population growth including net overseas migration of 547,300 in 2023.
Consumer sentiment also remains low and is the second weakest on record since the 1990s.
“Unsurprisingly, discretionary retail is vulnerable as shoppers remain wary of acquiring major household items,” Stewart said.
KPMG further reported a steady boom in online retail, with non-food online penetration reaching 18.3 per cent of total sales, up from 17.7 per cent in the previous quarter.
Marketplace platforms are also disrupting traditional shopping channels leveraging social media and supply chain models to cut out middleman retailers and allow consumers direct access to suppliers in their search for value.
According to the consultancy firm, these platforms enable the consumer to buy directly from mostly Chinese factories at price points up to 60 per cent less than they would otherwise pay in a store environment.
“Social media platforms have changed the shopping pathway for consumers who are increasingly starting their discovery journey directly through social networks,” Stewart said.
Returning to CommBank’s latest HSI data, just two of the 12 categories saw spending falls in August month-on-month, including utilities and transport, both down 0.3 per cent respectively. These come as government rebates on electricity and lower petrol prices offered some relief to consumers.
CommBank reported that the rebates led to notable shifts in spending across home ownership status as renters saw an uptick in the annual rate of spending to 1.3 per cent, while those with a mortgage (up 2.8 per cent) and outright owners (up 1.8 per cent) saw a slowdown in spending compared to July.
“For the first time in August, we saw the impact of the various government electricity rebates on wallets - which can be seen by the decreased spending on utilities,” Halmarick said.
“This, coupled with increased education spend, impacted spending across home ownership categories as we saw a jump in spending by renters likely due to university fees, while outright owners benefited from reduced spend on utilities as this is typically a larger share of their wallet.
“While the earlier timing of Father’s Day has added some complexity to the data, we still anticipate that softer economic conditions, easing inflation, and rate cuts by other central banks will prompt the RBA to lower interest rates later in 2024.
“However, there is a possibility of delays pushing this into early 2025.”