Australian retail sales declined by 1.8% in June weighed by lockdowns in Victoria and New South Wales ahead of further weakness to come. Spending patterns shifted away from discretionary areas towards essentials as online sales soared. Retail consumption lifted solidly for the quarter overall but will fall sharply in Q3.
Retail Sales — June | By the numbers
- Retail turnover (nominal terms) fell by 1.8% for the month in June to $30.6bn, in line with the preliminary estimate and followed a 0.4% rise in May.
- Annual turnover growth decelerated further coming down from 7.7% to a more historically 'normal' pace of 2.9%. But the level of monthly sales is still around 10% above where it was prior to the pandemic.
- Retail volumes (nominal sales adjusted for inflation) lifted in line with expectations rising by 0.8% in Q2, more than reversing the 0.5% fall in Q1. This left volumes up 9.2% on a year earlier when much of the sector was shuttered during the national lockdown. Retail prices lifted by 0.6% in Q2 as the annual pace moderated to 1.7% from 2.3%.
Retail Sales — June | The details
National retail sales fell in June as stay-at-home restrictions were brought back in Victoria and New South Wales to contain outbreaks. Since then, lockdowns have tightened in Sydney as well as affecting several other states and will be reflected in the retail data over the coming months. In effect, June's report is probably a sign of things to come. The detail in the report reflected the switching of spending patterns away from discretionary areas — sales ex-food falling 4.1% in the month — to essentials. Hit particularly hard were clothing and footwear (-9.5%mth), department stores (-7.0%mth) and cafes and restaurants (-6.0%mth). More modest declines were seen in 'other' retailing (-1.6%) and household goods (-1.3%). In contrast, basic food was up by 1.5% — this was the category's strongest month-on-month rise in nearly a year — as households stocked up for lockdowns, while online sales surged by 11.6% in June representing an acceleration last seen at the onset of the pandemic. There was a stronger gain in non-food online sales (12.0%) than in food sales (10.8%).
By state, spending fell most sharply in Victoria (-4.0%m/m) while the first few days of the lockdown in Sydney were enough to see turnover in New South Wales lower on the month (-2.0%). Sales also weakened in Queensland (-0.9%) and Tasmania (-1.6%) in June. Only modest offset came from South Australia (0.6%) and Western Australia (0.1%). While turnover remains above pre-pandemic levels in all states, it is weakest in Victoria due to that state being more affected by lockdowns over the pandemic period than the other jurisdictions. Sydney's extended lockdown now sees all non-essential retailers closed so significant falls are ahead. Normally, sales in New South Wales account for around 30% of national monthly turnover and much of this is in Sydney.
Turning to volumes, retail consumption lifted by 0.8% over the June quarter to be 9.2% higher than a year earlier when the national lockdown was in place. But this was coming off a weak result in the March quarter for volumes (-0.5%) that was likely driven by more spending opportunities becoming available in service-related areas enabled by a widening reopening. The more virulent delta strain has meant the current design of the state-based lockdowns has hit the retail sector very hard, as it has for services areas. In the June quarter, volume growth across discretionary categories (sales ex-food) lifted by 1.5% to drive the overall lift in retail consumption. The strongest increases were in cafes and restaurants (3.9%) and clothing and footwear (3.0%). Going against the broader strength in discretionary demand was department stores, which fell by 3.1% in the quarter.
Retail prices were up by a modest 0.6% in the quarter, though this was higher than in the previous two quarters of 0.4% in Q1 and 0.1% in Q4 2020 (the latter coincides with discounting for Black Friday promotions). Prices surged at the onset of the pandemic and were elevated during the reopening, with these base effects slowing growth through the year to Q2 from 2.3% to 1.7%.
Most of the upward pressure came from the food category where prices lifted by 1.4% for the quarter. We know from last week's CPI data that higher fruit and vegetable prices are likely to have been the predominant factor here driven by supply disruptions and labour shortages.
Across the states, volume growth was strongest in New South Wales (1.7%q/q) ahead of what will be a material fall in Q3. The lockdown in Victoria meant that volume growth (0.1%) was the weakest of all the states in Q2. For the other states, momentum had faded slightly with levels softening from their recent highs.
Retail Sales — June | Insights
Household spending was weakening in June as the spread of the delta variant led to the return of lockdowns. This will intensify in July and into August as Sydney's lockdown was extended and tightened and several other cities enacted similar restrictions in response to local outbreaks. Volume growth recorded a decent rise in the quarter but will more than unwind in Q3 while services spending will also be hit hard.
