Black Friday, which occurred towards the end of November, was the unofficial launch into what is expected to be a bumper retail period. For example, between Black Friday and Cyber Monday it is estimated $6.2 billion was spent over the four days according to the Australian Retailers Association.
Analysts too are expecting Australians to spend like they’ve never spent before, with sales momentum expected to continue through to Christmas and the robust Boxing Day sales period.
Hang on.
Didn’t we just have our eighth consecutive interest rate rise which has taken the official cash rate to 3.1%? Well understanding the impact of rising interest rates on consumers is a little more nuanced than that.
Westpac Banking Corporation CEO Peter King said it best recently when he warned the RBA that there were signs that the psychology of consumers and businesses around inflation has shifted and that inflation expectations are becoming entrenched. Which means they are accepting paying more, despite the rising cost of living reducing disposable income.
We share the view that stocks in the retail sector will be resilient in the near term, particularly as Australians and New Zealanders remain employed. But that doesn’t mean this year’s sales period is not without its risks. Current issues include:
- High inflation and rising rates. In 1988, not only was the first-generation Nintendo Entertainment System top of Santa’s List, but it was also the last time inflation was at this level in the lead up to Christmas. The RBA and RBNZ is raising rates in response, however if they wish to make a dent on inflation using a blunt instrument like interest rates, they may have to take to it with an even bigger mallet.
- Consumer confidence. This stands to be the biggest risk to spending levels this Christmas. As property prices fall and the cost of living goes up, consumers become less confident with current levels not seen since peak COVID and prior to that the GFC. But with record low unemployment, record levels of disposable income, on trend levels of Household savings and improving wage levels, whilst they may not like it – consumers’ capacity to spend across discretionary items remains robust.
- Supply side issues. Supply chain issues throughout 2022 have been well documented and lead to companies across many sectors, including retail, to stockpile to ensure timely supply. Fortunately, retailers are ready to meet the demand of…
