Households ditch spending on food in favour of clothes: report

Lucille Keen
Sep 6 2016
AFR
Weak income growth is squeezing spending on food but clothes and homewares are benefiting from record low interest rates, recent economic data shows.
The value of non-food turnover increased by 3.4 per cent over the year to June 2016 in real terms, while food turnover growth was just 0.7 per cent for the same period, Deloitte Access Economics’ data shows.
Deloitte partner David Rumbens said supermarkets had survived the competitive environment by pushing down supplier prices.
“Supermarket and catered food operators are now relying on population growth to increase their sales, as real retail turnover per capita decreases,” Mr Rumbens said.
Last year, there was high growth in household goods, but this year the growth has been in clothing and department stores.
“These new growth categories are driven as much by supply-side circumstances as they are by demand,” he said.
“Transformation strategies by Myer, David Jones and Kmart/Target, as well as the hype surrounding competitive international fashion entrants, has had a huge effect on turnover in these categories.”
The report was released before the Reserve Bank of Australia announced on Tuesday the official cash rate would remain on hold.
However, Deloitte’s found the RBA’s decision to cut interest rates to a record low of 1.5 per cent in August was not as effective for consumer confidence as the previous cut in May, but was still driving incentives for Australians to spend and borrow instead of save.
“This is a positive movement for non-food retail categories, which benefit from the higher propensity of consumers to spend,” the report said.
Real (inflation-adjusted) retail sales growth was 2.5 per cent in the 2015-16 financial year, which was a moderated rate when compared with the 3.3 per cent growth in 2014-15.
It was expected retail sales growth could slow further to 2 per cent in 2016-17, before recovering somewhat to 3 per cent in 2017-18.
In the June quarter, real retail turnover growth dropped below 0.5 per cent for the first time since 2012.
The report found the household savings ratio had generally been trending downwards since 2013, but it did rise in the early part of 2016, helping to explain more modest spending growth.
Last month, Commonwealth Bank of Australia’s Business Sales Indicator showed political uncertainty hampered spending growth across the economy to its lowest in four years.
Only just over half of the 19 industry sectors saw growth in trend terms in July, and spending in clothing stores was up 1.1 per cent in June.
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