Consumers feeling much more optimistic about the future

Consumer sentiment increased by 5.3% to 94.6 in November 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. The survey was conducted during the week of the RBA holding the cash rate at 4.35% and the US election result, with a dip in sentiment post-election. The index is now 14.4% above its mid-year lows and 5.4 points below its ‘neutral’ level. The most recent ABS retail sales increased by 0.1% in September 2024, stabilising after the stronger 0.7% growth in August 2024, which was driven by an increase in spend due to warmer-than-usual weather. NAB Online Retail Sales fared better in September 2024, increasing by 2.4%, attributable to an acceleration in the two largest sales sub-categories: ‘home and appliances’ and ‘department stores’. Despite monthly CPI inflation easing to 2.1% in September 2024, cost-of-living pressures persist, however, retailers are anticipating a significant boost during the November sales events (Singles' Day, Click Frenzy, Black Friday, and Cyber Monday) as cost-conscious consumers take advantage of discounts and pull forward their Christmas spend.

According to McGrathNicol’s Working Capital Centre of Excellence Report released last week, Days Working Capital (DWC) within the retail sample reduced in 2024, as retailers delayed payments to suppliers in response to slower inventory turnover reflecting the challenging demand environment. The report considers a sample of ASX-listed retailers and shows that the 1.9 day decease in DWC was driven by a 6.9 day increase in Days Payable Outstanding (DPO) as retailers slowed payments to suppliers. This was done to mitigate the effects of a 4.4 day increase in Days Inventory Outstanding (DIO). Many Australian retailers found it difficult to accurately predict demand over recent periods, which coupled with ongoing concerns with reliability and cost of supply chains, resulted in many retailers ending the financial year with more inventory then planned. Compared to international counterparts, inventory holdings for Australian retailers remain structurally elevated, often due to Australia’s geographic remoteness from suppliers. The upcoming November sales and holiday period will be crucial for improving inventory turnover.

For further detail, refer to McGrathNicol’s Working Capital Centre of Excellence 2024 Working Capital Report.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment increased by 5.3% to 94.6 in November 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. The November 2024 survey was undertaken in the week the RBA held the cash rate at 4.35% and the results of the US election were announced. The survey detail showed that consumers anticipated the RBA’s decision as the index tracked up ahead of the meeting and remained unchanged at 99.7 post the RBA announcement. This compares to a sharp decline following the US election results, though there was some recovery towards the end of the survey period, with an average index reading of 91.1 post the election. The index is 14.4% higher than its mid-year lows, 18.4% up on November 2023, and just 5.4 points below the ‘neutral’ index level of 100.

Looking at the sub-indexes shows that consumers are optimistic about the future but still struggling in the current economic environment. The three sub-indexes which look forward are now all above 100 after robust improvement in November, whereas the index that compares family finances vs a year ago (while improved) still sits at 78.8. The ‘time to buy a major household item’ was at 85.2, well below its historical average. The improved consumer sentiment is a promising sign for retailers ahead of the upcoming November sales and Christmas shopping season.

Source: Australian Bureau of Statistics

The most recent ABS Retail Sales data increased by 0.1% (seasonally adjusted) in September 2024, marking a 2.3% increase or $0.8 billion compared to September 2023. This stability follows 0.7% growth in August 2024, which was driven by an increase in spend due to warmer-than-usual weather. Performance across the sub-categories was mixed in September 2024. The largest increases were seen in ‘household goods retailing’ (+0.5%) and ‘cafes, restaurants and takeaway food’ (+0.4%). Household goods retailing was the only sub-category to decline in the prior month (-0.4%), but saw a rebound in September, driven by increased spending on hardware and gardening items in Western Australia. This compares to ‘department stores’ (-0.5%), ‘clothing, footwear and personal accessory retailing’ (-0.1%) and ‘food retailing’ (-0.1%) which all contracted slightly in September following increases in August. Retail sales in October 2024 may be subdued as cautious consumers look forward to major November shopping events like Singles' Day, Click Frenzy, Black Friday, and Cyber Monday. These events are anticipated to give retailers a significant boost by appealing to cost-conscious consumers, many of whom will aim to complete their Christmas shopping early to take advantage of the discounts available.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales increased by 2.4% in September 2024 (seasonally adjusted), following a revised increase of 0.1% in August 2024 (previously 0.0%). Sales growth also remains elevated in year-on-year terms (+12.4% vs September 2023).  In September 2024, all sub-categories saw growth, however the majority of the growth was driven by the two largest sales sub-categories: ‘home and appliances’ (+4.9%) and ‘department stores’ (+4.4%), both rebounding from contractions in August 2024. Similar to the sales by sub-category, all states and territories recorded growth, except for the Northern Territory, which saw a decline of 0.8%. In the 12 months to September 2024, online retail sales are estimated to total $58.79 billion and represent 13.7% of retail sales reported by the ABS.