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The retail sector has tackled the COVID-19 crisis, and come out on top.
Retail spending recovered strongly in the second half of 2020, more than offsetting the slump in June, to end 6.4% higher in the year to December 2020. And this strong recovery was experienced across much of the sector, with all broad segments of spend (barring cafés and restaurants) posting year-to gains in the December quarter.
Much of the strength in retail spending through 2020 was due to the fact that there wasn’t much else that households could spend on, especially with both international and interstate travel off the cards. And while 2021 is shaping up as an economic recovery year, for those retailers that were ahead of the pack in 2020, a transition back to more normal spending behaviour could mean that 2020’s windfalls were temporary.
There are definitely some challenges ahead. The fiscal stimulus tap has been turned down to a drip, meaning less money for households to spend. Luckily, they are more likely to feel like spending what they do have given the good news on vaccines and increasingly fewer restrictions across activities.
But the economic recovery and re-opening of industries will more likely be a headwind than a boon for many retailers in 2021. Those big winners in 2020 are likely to face higher risks in 2021 as the share of wallet starts to normalise back to pre-COVID levels.
Because of these challenges, retail spending is expected to track steady over the course of 2021. Consumers’ war chest of savings will provide plenty of ammunition even in the face of declining fiscal support, but retailers will struggle to hang on to the market share gains they enjoyed in 2020. Overall, spending is forecast to slow in the second half of the year, ending 0.4% lower in the year to December 2021.
Nominal and real Australian retail turnover
Some retailers are also expected to face more difficult conditions than others. This is especially the case for those that have benefited from the lockdowns through 2020. Household goods and specialty food retailing increased both their share of consumption and share of income. This means households were willing to spend extra money in these areas as they limited spend elsewhere. Around 8.2% of household goods retailing in 2020 was due to increased spending as a share of income, but this may be at risk going forward as households reassess their spending behaviour.
Share of 2020 retail spend at risk, by category
For now, it looks like broad spending patterns are reverting back to pre-COVID shares, but at a slow rate. It will take time for certain parts of spending to reboot, including hospitality and travel, as border disruptions remain a threat.
If these issues are wholly resolved by vaccines, the shift in spending behaviour could be even more pronounced, and result in a bigger handbrake for retail spending.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.
Emily is an Associate Director within Deloitte Access Economics' macroeconomic team in Sydney. She has experience delivering economic analysis and commentary to a range of clients across the public and private sectors.