Australian Retail Sales: July 2023 - Bouncing a little higher after a soft June
About the author:
- Author name:
- By Alexander Mees
- Job title:
- Co-Head of Research and Senior Analyst
- Date posted:
- 29 August 2023, 7:00 AM
- Sectors Covered:
- Gaming and Retail
- Retail sales rose by more than expected in July 2023, rising +0.5% month-on-month after a subdued performance in June. This was more than the consensus expectation of a +0.3% month-on-month increase. Compared with July 2022, retail sales were +2.1% higher, still positive, but at the slowest rate of annual growth since August 2021.
- Department Stores and Clothing & Footwear were the best performers in July, rebounding after both underperformed during a weak EOFY sales period in June.
- Today’s retail sales performance, together with recent trading updates from listed retailers, appear to be consistent with a ‘soft landing’ scenario. Low unemployment is sustaining an apparently controlled descent in retail sales in the face of relentless cost of living pressures.
July retail sales were up 0.5% month-on-month
Preliminary data from the ABS show that Australian retail sales were A$35.4bn in July, which was up +0.5% on June on a month-on-month (m/m) basis. June had been weak, with a 0.8% m/m decline compared with May.
Department Stores reported the strongest growth, up 3.6%, but this was largely a function of reversing a very poor performance the previous month (down 4.8% m/m) which itself reflected a weak EOFY promotional period. There was a similar pattern for Clothing and Footwear, which was the next best performer in July, up 2.0% m/m (following a 2.3% m/m decline in June).
Eating Out also grew m/m up 1.3%, which the ABS commented was assisted by ‘additional spending at catering and takeaway food outlets linked to the 2023 FIFA Women’s World Cup and school holidays’.
Only Household Goods (-0.2%) and Food & Drink (0.0%) failed to grow positively m/m in July compared with June.
July retail sales were up 2.1% year-on-year
On a year-on-year (y/y) basis, retail sales were up 2.1% y/y, well below the rate of CPI, which indicates that volumes are trending down. On a y/y basis, the strongest performer was Eating Out, up 9.0%.
This was followed by Food & Drink (groceries and liquor), up +4.9%, which reflected both inflationary movements and the lingering effects of a post-COVID normalisation of consumer behaviour.
The weakest performers y/y were Household Goods (down 4.1%) and ‘Other Retailing’ (down 2.1%). July was the ninth consecutive move of negative y/y sales growth in the Household Goods category, though there are indications sales might be starting to bottom out.
Implications for retail stocks
The current pattern of retail sales in Australia appears to be consistent with a ‘soft landing’ hypothesis. With unemployment remaining very low (and wages moving up), discretionary expenditure is softening in the face of pressures on the cost of living, but not collapsing.
This is a positive scenario for all retailers, but especially good (relative to prior expectations) for those that operate in the more discretionary categories of clothing, footwear, electronics and homewares.
Most listed retailers have now given trading updates for the first few weeks of FY24, which generally extend into August and so are more current than the ABS data for July. With only a few exceptions, most retailers have reported LFL sales trends that are also less precipitous than may have been feared.
For investors wishing to build their exposure to discretionary retail, we prefer LOV, SUL and UNI. We have also recently upgraded our ratings to ADD for AX1 and BBN.
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