STRONG WAGE GROWTH TIPPED TO DRAG RETAIL FROM SLUMP

By Clancy Yeates

Source: http://www.smh.com.au/business/strong-wage-growth-tipped-to-drag-retail-from-slump-20120307-1ukii.html#ixzz1osC0ePim

March 8, 2012

THE battered retail industry will emerge from its two-year slump next financial year as better economic conditions help to lift spending, a new report says.

Independent forecaster Deloitte Access Economics predicts sales volumes will edge up 1.2 per cent this financial year and 2.6 per cent in 2012-13, after growing by just 0.7 per cent in 2010-11.

While this would be an improvement, it is still well below what retailers enjoyed before the global financial crisis caused spending to stall.

After tentative signs of life in consumer spending in recent months, Access said wages growth would be a key driver of stronger retail conditions in the coming year.

Since the global financial crisis, many households have embraced thrift, and curbed their spending while saving more than 12 per cent of their income.

Official figures published yesterday suggested the savings rate was stabilising at near 9 per cent, and Access said this flattening would allow more future income gains to be spent.

”Australian GDP growth over the next year is likely to be strong, thanks to business investment, and retail growth will be particularly supported by real wage growth and a levelling out in the savings rate,” said the report, which will be published today.

Despite the improvement in retail, the benefits are unlikely to be shared equally between the industry, with smaller gains expected for department stores.

Sales volumes at department stores have fallen in the past two years, and the report forecast the sector would drop another 2.7 per cent this financial year, before a slight rise in 2012-13.

Access partner David Rumbens said department stores would continue losing market share to rivals as consumers shopped elsewhere.

”Department stores have been losing sales to other forms of retail. More recently that’s been online, but even prior to online they were losing out to some of the specialty retailers,” Mr Rumbens said.

Clothing and footwear stores have also been among the hardest hit, and the report forecast sales in this sub-sector would plunge 6.5 per cent this financial year.

In 2012-13 however, the report said clothing and shoe shops would experience the strongest growth among retailers, as Australian firms captured more of consumers’ online spending.

Stores selling household goods were also forecast to see sales rise next financial year, based on a prediction that the construction industry would bounce back.