Retail sector sluggish as weak growth remains

Growth in the retail sector is expected to slow further, dragged down by the poor performance of food retail.

Despite low interest rates and asset inflation floating the non-food part of the sector, food retail has proven weak, growing by just 0.7 per cent over the year to June 2016, according to a recent Deloitte forecast.

Its estimates indicate the retail sector is expected to slow further to just 2 per cent growth over 2016-17 before recovering the following year.

“Last year, the strong growth in housing activity spurred household goods turnover, while this year is characterised by growth in apparel and department stores,” the Deloitte report said.

“These new growth categories are driven as much by supply side circumstances as they are by demand. Transformation strategies by Myer, David Jones and Kmart/Target, as well as the hype surrounding competitive international fashion entrants have had a huge effect on turnover in these categories.”

However, against a backdrop of a transitioning economy, some states are doing better than others.

“Slowdown in resource rich states (Western Australia, Queensland and the Northern Territory) is contrasted by stronger conditions in the likes of New South Wales and Victoria. That is a direct reflection of the shift from a mining construction boom to a housing construction boom, with the big states of the south and east getting the upside from that baton pass,” the report said.

In an atmosphere of low interest and slow underlying growth, the retail sector is not the only one struggling.

“Share market values have moved up in August despite a lack of equivalent strength observed in profit reports, suggesting that share prices are being driven by cheaper finance rather than better returns.”

 

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