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Christmas sales in December fell short as Australian consumers looked for bargains

Elizabeth Knight

It's official. Australians consumers are even more addicted to bargains and allergic to paying full price for discretionary retail items.

The official retail sales statistics for the all-important pre-Christmas period fell significantly short of expectations, not because we bought fewer items but because we paid less for them.

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Despite much rhetoric from major retailers that "sales" and price based promotions will be managed and targeted, the sluggish start to December appears to have led to a loss of nerve from shopkeepers, who started lowering their prices in the week leading up to Christmas in a desperate move to see shoppers open their wallets.

The trouble for retailers – particularly those that are publicly listed companies – is that they give shareholders sales targets for the quarter or half and whether they are met is largely dependent on the Christmas trading period.

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And for those that engaged in premature discounting, there would have been a flow-through effect to January when customers expect to see further price cuts.

When it comes to retail categories, the outcome for December was a pretty mixed bag but the standout woeful performer was household goods – more particularly hardware which was down a massive 6.6 per cent.

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This could be something of an aberrant result because consumers had been buying up big in hardware in previous periods when Woolworths-owned Masters was liquidating stock.

If this was backed out of the general ABS statistics the overall outcome would probably not have been in negative territory.

But nor would the overall retail sales number for December have been particularly positive.

As Citi's experts explained, "nominal household demand is still slowing". The November retail trade growth estimate of 0.2 per cent was revised back to an even slower 0.1 per cent. The yearly rate of retail trade growth has steadily eased back to 3.0 per cent, which is near the low for 2016.

On Citi's analysis, "this slowdown is entirely due to moderation in discretionary categories of retail trade that in aggregate were just 2.5 per cent higher in yearly terms. For reference this was only half the growth rate recorded back in December 2015."

And there were no standout good performers. Food was up 0.5 per cent, department stores eked ahead 0.3 per cent and clothing – which was probably the best performer – managed to move up a more comfortable 1.4 per cent.

Looking at the December quarter, Westpac economist Matthew Hassan noted that "the more subdued price gain was the main surprise for us". Food retail prices posted a solid 1 per cent rise in the quarter (a bit firmer than expected) but non-food retail prices declined 0.3 per cent in the quarter to be down 0.1 per cent over the year.

Department stores, clothing and household goods retailers all recorded outright price declines.in the quarter.

Therein lies the dilemma for discretionary retailers. And it's not just bad news for retailers. Last week we saw disappointing results from airline Virgin Australia, which despite heavy discounting saw earnings for the December quarter fall more than 35 per cent against the same quarter last year.

Clearly discounting is seen by many as the only way to move stock, even though it will eat into their margins. But do they have a choice when consumer demand is weak?

In December, Oroton pointed to challenges in its sales – a position that only got worse and in January it downgraded its half-year sales to be down 10 per cent.

Over the next month to six weeks as retailer half-year results are released, investors will get a clearer picture of how these companies traded through the period.

Analysts are expecting JB Hi-Fi to perform relatively strongly – given it is still feeling the positive after-effects of the closure of its competitor, Dick Smith – and Myer is thought to have traded reasonably well through the period.

Economists generally are all predicting sluggish economic growth and low inflation this year.  But there remains plenty of divergence of views on whether the Reserve Bank will respond by further cutting interest rates.

The general consensus is that the central bank won't move on Tuesday in response to the latest retail sales data, mainly because of the Masters-related negative skew.

The RBA has plenty of other factors to take into consideration – not the least of which is the fact that it doesn't want to further spur the residential property market, whose gains this year have defied gravity.

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