“Consumer spending was incredibly strong in the three months to June 30, as shoppers opened their wallets on travel, transport, hotels, cafes and restaurants. Household spending rose 2.2 per cent in the quarter and was 6 per cent higher over the year,” writes Kehoe, addressing the rising cost of living concerns, “So far, rising inflation and higher interest rates are doing little to deter shoppers.”
But while such optimism is refreshing, is it fair to suggest that it is realistic?
Even Federal Treasurer Jim Chalmers on Wednesday was quick to preach caution when reading too much into the GDP’s growth from this June Quarter, saying, “It’s a solid outcome, but it doesn’t tell the full story about our economy.”
So what does that full story look like, and does it reflect Kehoe’s suggestions that the cost of living crisis is “exaggerated”?
Not quite, and the reasons are important to understand for retailers, consumers and market watchers alike.
Certainly, data suggests that retail’s recent months have seen some very positive improvements from this time last year, with the Monthly Turnover at Current Prices for July reaching 16 percent according to the Australian Bureau of Statistics. That’s quite a significant jump from the -3.2 of one year beforehand.
For online retail, the change in that same 12 month time span was only minimally in the wrong direction, with online sales for July of this year reaching over $3.5 billion – only a 1.6 percent decrease from the results of July 2021. The results for online retail, however, still sit at levels a colossal 231 percent higher than those of five years ago.
However, the full picture is slightly more complicated. Power Retail’s most recent trajectory report, for example, finds that the number of consumers planning to decrease their online spend in the next month sat at 21 percent in August – 3 percent higher than August last year. From these shoppers planning to decrease their spending, 62 percent suggest their doing so is in order to save money for essential items, with 12 percent reporting reduced income being a factor and nine percent reporting uncertainty about employment status.
Furthermore, Power Retail data also shows that conversion rate towards the end of August sat at 2.4 percent, down from 3.2 percent at the same time last year, and traffic to Power Retail’s Top 100 online retailers had also declined 12 percent year-on-year.
Even from the same National Accounts information that the AFR’s Kehoe is responding to, other subsequent data points paint a picture of the problems bubbling beneath the surface, such as household savings to income ratios having seen a third consecutive quarterly decline – falling from 11.1 percent to 8.7 percent.
And while spending was certainly steady comparatively, these rates still remained at levels comfortably below those before the beginning of the pandemic.
“Households increased spending on domestic and international travel as COVID restrictions further eased and international borders remained open,” says Sean Crick, head of National Accounts at the Australian Bureau of Statistics, “[But] while spending on transport grew strongly, households were still only spending two thirds of what they did pre-pandemic.”
And at least part of the spending spikes in the June quarter, it’s felt, can be attributed to consumer anxieties for what’s to come for the remainder of the year. Recent analysis of the current global consumer outlook performed by NielsenIQ shows that at least 50 percent of consumers feel less secure about their country’s economic stability improving before the end of the year, with 82 percent of consumers reporting being either deliberately cautious with their spending or directly experiencing financial insecurity.
“We are entering ‘the age of thrift’, where consumer spending decisions will be more considered, cautious, and calculated throughout 2022 and 2023 as they weigh up what is critical and important and reshuffle priorities,” said Nicole Corbett, Vice President of NielsenIQ Global Thought Leadership.
The bottom line ultimately suggests that discretionary spending is already on the decline amidst cost of living concerns, with increases in spending in the June quarter at least partly attributable to consumers buying what they need when they can as they expect prices to continue rising for the remainder of the year. To that point, NielsenIQ’s data further identifies that as many as 38 percent of consumers are already identifying as adapting their lifestyles to be more cost conscious.
And while help reining in inflation rates appears to be on the way, the situation on this front may still not improve for some months, with an inflation rate already higher in Australia than at any time since the early 1990s.
“The Board is committed to returning inflation to the 2-3 percent range over time. It is seeking to do this while keeping the economy on an even keel,” wrote RBA Governor Philip Lowe on Tuesday, “The path to achieving this balance is a narrow one and clouded in uncertainty, not least because of global developments.”
“An important source of uncertainty continues to be the behaviour of household spending. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments.”
That pressure has resulted in record levels of financial stress being felt by Australians, according to the recent Financial Wellness report from AMP, which finds that more than 21 percent of employed Australians report suffering from severe or moderate financial stress – almost twice the number recorded two years ago in 2020.
Ultimately, the entire picture comes together to suggest that the cost of living crisis is not quite as “exaggerated” as argued by John Kehoe in the Australian Financial Review, but also isn’t necessarily all doom and gloom for online retailers especially. As consumers do become more cost conscious, an opportunity presents for a more competitive and potentially lucrative retail market for retailers who are willing to make the effort to better understand consumers engaging or hoping to engage in this market.
Not unrelated, with fuel prices determined to be the source of most financial concern in the last six months for as many as 49 percent of consumers, online retailers can seize upon opportunities presented by the cost conscious consumer turning to online retail in order to penny pinch by avoiding unnecessary commutes. This is especially true for online retailers providing household essentials and non-discretionary items, including food and grocery, but whose tailoring to better meet the needs of cost-conscious consumers also works to serve the benefit of online retailers providing items that might be described as being in the discretionary bracket.
In short, the retail climate in this ‘age of thrift’ is clearly one in which save is prioritised over spend. However, spend by virtue of necessity isn’t going anywhere, particularly in a ‘post-pandemic’ world where the increased adoption of digital inherently offers consumers with opportunities to save – leaving room for spend, provided the consumer’s needs are met. As the trends of consumer spending turning to online retail continue to grow away from traditional brick-and-mortar retail, the cost of living crisis as it exists nonetheless presents opportunities for both new players and adaptive, constructive minded retailers to find new or enhanced opportunities to withstand present challenges and thrive in the retail world that will ultimately exist on the other side of the crisis.
Opportunities seized now, in times of inarguable crisis, are opportunities made even more lucrative when economic relief finally comes.
The e-commerce landscape is changing. With a Power Retail Switched On membership, you get access to current e-commerce revenue and forecasting, traffic levels, average conversion rate, payment preferences and more!